CalPERS Tables Philippines Decision

February 18, 2004 ( - To continue to invest, or to not continue investment in the Philippines is still the question in the mind of the California Public Employees' Retirement System (CalPERS), who has decided to put the matter on a 30-day hiatus.

The Philippines, which faces the possibility of being removed from the US pension fund’s list of permissible investment destinations, was given 30 days to work with CalPERS consultant Wilshire Consulting “to include the (country’s) most recent data on the financial market and labor reforms” in the review, the government’s Investor Relations Office said.   A collective groan may rise out of the pension fund watcher gallery, as a decision was expected to be reached today.  

This comes after the Southeast Asian island nation scored poorly for the third consecutive year in Wilshire’s annual emerging markets report card.   While the most recent number, 1.86, was an improvement for the archipelago from the previous year’s 1.46, it was still below the 2 that CalPERS’ requires for “qualified investment sites.”   Wilshire found the slings and arrows of outrageous fortune that the Philippines suffers is the nation’s inability to have its name removed from the Paris-based Financial Action Task Force’s blacklist of countries deemed to be uncooperative in the fight against money laundering.

The temporary stay of execution provided a modicum of relief to the Philippines center bank governor Rafael Buenaventura who said it was “welcome news” since it will provide “time to include (in their review) things that we have done.”   This is not the first time the Philippines has been in the middle of a maelstrom of pension fund investment criteria.   Last year, CalPERS decided to keep the country on its investment list for an observation period of one year (See  CalPERS Keeps Dollars in the Philippines ).

The US fund’s emerging market investment decision is based on a three-pronged approach that examines market efficiency, political stability, and good corporate governance practices in the countries in which it invests.   While the Philippines may breathe a sigh of relief, albeit a temporary one, other nation’s were not so lucky, as the $164 billion pension fund downgraded the likes of Argentina, Turkey and Peru from its list of permissible investments this year, giving the trio a one year “cure period.”   Conversely, Malaysia, Thailand, and South Korea got high scores this year, as assets from the pension fund may flow back into those nations after being withdrawn previously (See CalPERS Drops Blacklisted Foreign Equities ).  

The pension fund made the decision despite Wilshire’s recommendation to remove the country from the list.   During the one-year “cure period”, the Philippines was supposed to correct deficiencies in its system to qualify permanently as an investment site.  Wilshire had given the country low scores in areas of market practices and business conduct although the Philippine government argued that Wilshire based its recommendation on inaccurate data.

Overall though, the emerging markets that are approved for investment by CalPERS are fighting over a relatively small slice of the pie.   CalPERS has only $2.6 billion worth of investments in emerging markets as a whole, an aggregate representing less than 2% of the fund’s total asset base.   Pension and investment watchers though see any move made by CalPERS as being a bellwether, since the massive pension fund wields great influence due to its reputation as a market watchdog and advocate for social reform.