Philippine Markets Newsletter

PH Monday Macro: Prudent governance is a strong reason why sovereign wealth funds succeed

June 26, 2023

In the previous two articles, we discussed the senate bill parameters for the establishment of the Maharlika Investment Fund (MIF) as well as its potential benefits to the economy and possible drawbacks.

Today, as a conclusion to this three-part series, we will take a look at other countries’ national wealth funds, their performance, and how they were managed. This will give us an idea of the MIF’s feasibility and what could happen if certain conditions are met.

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To assess if the Maharlika Investment Fund is possible in the Philippines, we can gain some insights from the performances of other national wealth funds.

We first take a look at the Norwegian Sovereign Wealth Fund (NSWF), the largest sovereign wealth fund globally, with over $1 trillion in assets and around 1.5% of globally listed shares.

Its performance can be attributed to the fund’s transparent oversight, clear delegation of duties, and effective control and supervision systems. Thanks to prudent management practices, the current fund value is equivalent to $250,000 per Norwegian citizen.

However, on the other side of the coin, not all sovereign wealth funds are run with strict oversight of the management of funds.

The 1Malaysian Development Berhad (1MDB) case, currently reformed as Malaysian Khazanah Nasional (MKN), is an example of how it is possible to misuse funds for personal spending or capital embezzlement.

The 1MDB scandal happened due to a combination of factors, including weak governance and oversight, lack of transparency, alleged collusion and conflicts of interest, a weak regulatory and enforcement environment, the utilization of complex financial structures and money laundering techniques, and a perceived culture of impunity.

These factors created an environment conducive to corruption and financial misconduct, allowing for the misappropriation of funds and the manipulation of transactions within 1MDB.

The success of the NSWF and the downfall of 1MDB (or MKN) can be seen in their 10-year individual performance.

Analyzing the performance of the NSWF and MKN over the past decade, it becomes evident that there may be a correlation between governance and performance. The NSWF demonstrated consistent and gradual annual returns, while MKN experienced volatile swings in its yearly profit before tax.

What does this mean for the MIF?

The Maharlika bill emphasized transparency and accountability as it will “implement international best practices in investing and managing assets in accordance with the Santiago Principles and other internationally accepted standards and principles of transparency and accountability.”

That’s one step towards becoming a fund similar to the NSWF.

While we’ve stressed the importance of governance, it is not the sole factor in determining whether the sovereign wealth fund will succeed or not.

Economic downturns and geopolitical tensions can significantly impact the performance of sovereign wealth funds. Like any other investment vehicle, sovereign wealth funds do not guarantee positive returns.

In the meantime, the Philippine stock market is still a good investment choice for Filipinos. Using either peso-cost-averaging or investing in equity funds can result in higher returns in the long run.

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful.

Stay tuned for next week’s Monday Macro report!


Angelica Lim
Research Director
Philippine Markets Newsletter
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