Being gung-ho has its clear advantages in the global investment field, but not in managing government pension fund money, which is subject to clear rules as a protection against the dissipation of public funds.

The suspension of GSIS president and general manager Jose Arnulfo “Wick” Veloso and six other officials over the P1.45-billion investment in Alternergy Holdings Corp. may involve several potential violations, initially identified by the Office of the Ombudsman, as well as an earlier report by the Commission on Audit (CoA).

Veloso’s supporters argue that the investments were part of a broader strategy to diversify GSIS’ portfolio and boost returns, but the transaction lacked transparency and adherence to investment protocols.

The Alternergy deal was a high-stakes gamble that prioritized potential gains over the fiduciary duty to protect the pensioners’ funds.

Ombudsman Samuel Martires acted swiftly in issuing the preventive suspension order on the GSIS officials.

Martires, in his decision, indicated “there is strong evidence showing their guilt; the charges against them for grave misconduct, gross neglect of duty, and violation of reasonable office rules and regulations.”

Such violations “may warrant their removal from the service.”

Veloso and other officials involved in the financial infusion into the renewable energy firm founded by former Energy Secretary Vince Perez are suspended for six months while state investigators review GSIS records.

The transaction is being investigated primarily for a suspected intentional bypass of the GSIS’ P1.5-billion threshold loophole.

Investments below this amount are not subject to board oversight. The suspicion of exploiting the loophole was highlighted by a CoA finding regarding the practice of “splitting” the transaction.

Splitting is done when a significant transaction is broken into smaller ones to evade oversight, but the Alternergy deal was executed as a single P1.45-billion private placement.

CoA’s 2023 audit said the amount was intended to exploit the P1.5-billion limit, effectively achieving the same outcome as splitting, which is bypassing board approval.

The investment was in perpetual preferred shares, unlisted and less liquid, requiring board approval regardless of the amount, as outlined in the fund’s Revised Investment Policy Guidelines (RIPG).

The Ombudsman said Veloso and company face administrative or criminal sanctions for governance lapses, particularly in the management of high-risk investments.

An analyst said the Ombudsman’s probe could lead to broader reforms aimed at safeguarding the pension fund.

The wicked investment maneuver was not the only problem in the transaction.

The RIPG also requires companies in which GSIS invests to have a minimum market capitalization of P15 billion for the core (long-term) portfolio or P5 billion for the trading portfolio.

Alternergy’s market capitalization at the time of the investment was P3.029 billion, far below the thresholds, based on findings of both the Ombudsman and the CoA.

CoA’s 2023 report cited the Alternergy deal along with other high-stakes investments and directed the fund to formulate a “recovery plan to address valuation losses.”

GSIS investments in DigiPlus Interactive and Nickel Asia were also flagged.

CoA particularly called attention to the practice of bypassing board approval, stating that it has become a systemic issue in GSIS, suggesting that Veloso and other key officials cavalierly violate established oversight mechanisms.

The Ombudsman’s quick action on an anonymous complaint indicated the urgency and necessity of protecting the pension fund that 4.5 million state workers rely on for their future.