Maharlika fund

FAST FACTS: What is the Maharlika Investment Fund?

Lance Spencer Yu

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FAST FACTS: What is the Maharlika Investment Fund?
(6th UPDATE) Here’s how the Maharlika Investment Fund will look like now that it has hurdled both chambers of Congress

MANILA, Philippines – The bill establishing the Maharlika Investment Fund made it past the House of Representatives in only 17 days, after President Ferdinand Marcos Jr. certified the proposal as urgent. The measure again raced past the Senate in marathon sessions stretching past midnight, as Marcos also certified the Senate bill as urgent. But what is it exactly?

The proposed Maharlika fund will mainly get seed capital from government banks, the Bangko Sentral ng Pilipinas (BSP), and other government revenue sources. According to the bill, the objective of the fund will be “to promote socio-economic development.” 

Lawmakers and economists have criticized previous versions of the bill for potentially exposing pensioners to higher risks, and for not having strong enough safeguards in relation to its management.

The House bill was authored by presidential cousin Speaker Ferdinand Martin Romualdez, and several other lawmakers, including the Speaker’s wife, Tingog Representative Yedda Romualdez, and presidential son Senior Deputy Majority Leader Sandro Marcos. The final House bill, which now has 282 co-authors, was approved by the House with a vote of 279-6 on December 15, 2022.

The Senate bill was sponsored by Senator Mark Villar. It swiftly passed the Senate, and was approved at 2:32 in the morning of Wednesday, May 31, with a 19-1-1 vote. Only Senator Risa Hontiveros voted against the bill, although other senators also questioned the fund’s necessity and safeguards throughout the short deliberation process.

Let’s find out what’s inside the Maharlika fund.

Where will the money come from?

When the idea of the Maharlika fund was first floated in the House bill, its explanatory note drew inspiration from the successful sovereign wealth fund of other countries in Asia, such as Singapore and Hong Kong.

But unlike the sovereign wealth funds in Singapore or Hong Kong, the Philippines won’t be financing the Maharlika fund from the country’s excess wealth or foreign reserves. It also won’t be funding it from natural resource extraction profits, unlike Norway and Kuwait.

Instead, the fund will be taking its start-up capital from government financial institutions (GFIs) and the national government:

  • Land Bank of the Philippines (Land Bank) – P50 billion
  • Development Bank of the Philippines (DBP) – P25 billion
  • National government – P50 billion

The P125 billion initially raised will be in the form of common shares, but the Maharlika Investment Corporation (MIC) can raise as much as P500 billion through more common shares sold to the government, as well as preferred shares sold to the government and private sector shareholders.

Previously, the bill also mandated the Government Service Insurance System (GSIS), Social Security System (SSS), and annual budget to contribute P125 billion, P50 billion, and P25 billion respectively. Following widespread criticism, lawmakers removed the mandatory contributions of all three. 

The final bill now includes a provision wherein pension funds are now “absolutely prohibited” from investing in the Maharlika Investment Fund. The SSS, GSIS, Philippine Health Insurance Corporation (PhilHealth), Home Development Mutual Fund (PAG-IBIG Fund), Overseas Workers Welfare Administration (OWWA), and Philippine Veterans Affairs Office (PVAO) are all explicitly banned from investing in the fund, whether on a mandatory or voluntary basis.

Annual contributions, especially dividends from the BSP, are expected to fulfill the national government’s P50 billion contribution. Here’s the breakdown:

  • Bangko Sentral ng Pilipinas: 100% of total declared dividends for the first and second years of the Maharlika fund’s establishment, up to a maximum of P50 billion. 
  • Government owned gaming operators and regulators: 10% of Philippine Amusement and Gaming Corporation income; 10% of income from other government owned gaming operators and regulators
  • Department of Finance Privatization and Management Office: Sale of government properties to MIC at fair market value; proceeds from privatization of other government assets
  • Other sources such as royalties and special assessments

The MIC now also has the ability to issue bonds within and outside the Philippines. The bonds may be long-term, medium-term, or short-term, with fixed or floating interest rates. However, any bond issued by the Maharlika Investment Corporation will not be backed by the Philippine government.

What will it be used for?

The MIC, a government corporation created by the bill, has the power to determine which assets and projects to invest in. 

Salceda and Marcos’ economic managers have said that the Maharlika fund was created at the President’s request. According to them, Marcos wanted a fund to invest in big projects that are usually scrapped from the national budget after passing through Congress. (READ: Marcos breaks silence, says Maharlika fund advantageous ‘for sure’)

“This is really a presidential aspiration to finance grids, dams, national broadband which are always, by tradition of this Congress, is relocated to the other programs,” Salceda said during a December 1 House hearing.

Here are the allowable investments outlined in the bill:

  • Cash, foreign currencies, metals, and other tradable commodities
  • Fixed income instruments issued by sovereigns, quasi-sovereigns and supranationals
  • Domestic and foreign corporate bonds
  • Listed or unlisted equities
  • Islamic investments, such as Sukuk bonds
  • Joint ventures or co-investments, mergers and acquisitions
  • Mutual and Exchange-traded funds
  • Commercial real estate and infrastructure projects, provided that investments in infrastructure projects shall be directed towards the fulfillment of national priorities
  • Programs and projects on health, education, research and innovation, and other such investments that contribute to the attainment of sustainable development
  • Loans and guarantees to, or participation into joint ventures or consortiums with Filipino and foreign investors, whether in the majority and minority position in commercial, industrial, mining, agricultural, housing, energy, and other enterprises, which may be necessary or contributory to the national development of the country, or important to public interest
  • Other investments with sustainable and developmental impact as may be approved by the Board

The MIC’s board of directors is also tasked with ensuring allowable investments are “in accordance with the principle of sustainability.”

The hope is that the combined capital from GFIs can invest in these capital-intensive projects for a high return. Senator Mark Villar earlier estimated that the expected return of the MIF would be at 8.6% – supposedly much higher than the cost of capital and return on the GFIs’ current investments.

Who will manage it?

The MIC will be led by a 9-member board of directors. The board has the power to “direct the management and operations, and administration of the MIC.”

Here is the proposed composition of the board of directors under the Senate bill:

  • Finance secretary (chairperson)
  • President and chief executive officer of the MIC (vice-chairperson; three-year term)
  • President and CEO of Land Bank
  • President and CEO of DBP
  • 2 regular directors (three-year term)
  • 3 independent directors from the private sector (one-year term)

The CEO, regular directors, and independent directors will be appointed by the President upon the recommendation of the Advisory Body. 

The regular directors must be Filipino citizens with experience in either corporate governance and administration, investment in financial assets, or management of investments in the global and local markets. Regular directors also cannot hold public office or possess any private financial or business interest during their tenure.

The independent directors must also not hold any business or financial interests that could result in a conflict of interest with the fund’s management. The one-year term of independent directors may be extended up to a maximum of 9 years. 

The Advisory Body, which has the power to recommend the CEO and directors of the MIC, will be composed of the budget secretary, the National Economic and Development Authority secretary, and the national treasurer.

What are the issues so far?

Fears surrounding the fund often point to the 1MDB corruption scandal that brought down Malaysia’s sovereign wealth fund and placed its then-prime minister behind bars. Even with the proposed safeguards, experts worry about the possibility of a similar case here.

“The Philippines has had a history of funds mismanagement and scandals: coco levy, PhilHealth scandal, and SSS fund being used for politically-tainted stock purchases. [S]o yes, the Malaysian fund scandal can happen here,” said Enrico Villanueva, a senior lecturer of economics at the University of the Philippines Los Baños, in an interview.

Villanueva also argued that the Maharlika fund’s stated objective of funding national development projects can be achieved without setting up a sovereign wealth fund (SWF).

“National development projects do not need a SWF to happen. We have had dams built without an SWF,” he said. “If development projects of the executive branch do not gain congressional support, it can be that there are valid issues with the project (destruction of the environment, displacement of people and their livelihood, etc.).”

The final bill also included an article on offenses and penalties for erring members of the board of directors, internal auditors, and intermediaries for graft and corrupt practices. –

Read more about the proposed Maharlika Investment Fund:

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Lance Spencer Yu

Lance Spencer Yu is a multimedia reporter who covers the transportation, tourism, infrastructure, finance, agriculture, and corporate sectors, as well as macroeconomic issues.