Pros and Cons of Maharlika Wealth Fund

Juan Apolinario C. Reyes

Maharlika Wealth Fund (Sovereign Fund) House Bill 6398 (Cons and Pros)

Cons

a. This will create another layer of bureaucracy in a country where government is already humongous and ridden with so much corruption.

b. Since the constituent funds will come from SSS, GSIS, Land Bank, & DBP, a major failure in managing Maharlika Fund will cascade into our major pension systems and two major finance corporations. The consequences of a financial debacle stemming from funds mismanagement is huge.

Pros

a. The Maharlika Fund will receive so much government largesse to jumpstart it, an amount of money which the constituent corporations can never acquire on their own. The sovereign fund will also receive regular contributions from PAGCOR, BSP, General Appropriations, etc. But Maharlika Fund is not obligated to pay the latter back. This means that indirectly GSIS, SSS, LB, and DBP will receive a huge amount of public money. Free.

b. In case of a financial debacle, the Maharlika Fund would always have the backing of the national government. The national government, with all its powers and resources, can always be tapped to support the fund in the event of major failed business decisions. This is a humongous resource to be made available to the constituent corporations. No private pension systems nor private banks can hope to receive the same government generosity.

c. It is routine business for pension systems to invest in income generating schemes to support pensioners. However, SSS and GSIS are naturally averse to risks. But at the same time, it is in risky ventures where large profits can be made. From the point of view of an ordinary employee, the amount of money a pension system has is big, but this is puny compared to the investment opportunities in the country that require hundreds of billions in capitalization.

By pooling their resources in the Maharlika Fund, they can participate in ventures that require a big capital. If the venture succeeds, profits are shared among them. If they fail, the losses are shared among them. The losses will be dampened even more because of the annual contributions the sovereign fund will get from PAGCOR, BSP, General Appropriations, etc. No private pensions nor banks can ever receive this same largesse ever.

d. The Maharlika Fund will be so big it can bankroll business endeavors that require big capitalization, and business endeavors that are likely to return huge profit in some distant future. A case in point is power generation.

For the four institutions, SSS, GSIS, DBP, and Land Bank, the biggest plus of Maharlika Fund is that profits from successful ventures will be shared among the four of them, but losses will be shared among more than four entities. These are SSS, GSIS, DBP, LB, and the National Government.

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