00:00 Glad you're staying with us right here on The Exchange where your business is our business.
00:14 I'm Rico Gizon.
00:20 As the Philippines builds its Mahalika Investment Fund, what can the administration learn from
00:25 other nations to maximize profit?
00:28 Let's now have an exchange with Sovereign Wealth Fund Institute President Michael Madwell
00:33 joining us now from Washington State.
00:35 Michael, great to have you with us.
00:37 Briefly, what are the benefits in setting up a sovereign wealth fund?
00:43 There are a number of benefits.
00:44 The first benefit is that it will enable the country to save money, pool resources together
00:51 and allocate them more efficiently than having a bunch of different entities.
00:56 Number two, it will attract other investors to come into that country.
01:00 We've seen that with Indonesia, we've seen that with Singapore, we've seen that with
01:03 other countries all along the region.
01:06 Number three is that there's an ability to also jumpstart the asset management sector
01:11 within the country.
01:13 When you have a sovereign wealth fund, there's been studies that have shown that it'll attract
01:18 banks, foreign investors, both public and private.
01:22 For example, if you look at the Middle East, right?
01:24 Right, yeah.
01:25 Saudi Arabia, they've attracted firms like KKR, BlackRock, Blackstone, right?
01:29 They're opening up solid offices in the UAE.
01:33 So that could also be an ancillary effect to benefit the local financial community as
01:37 well.
01:38 So, Michael, despite being a deficit economy with a huge debt, the Philippines finally
01:45 joins other countries with a sovereign wealth fund.
01:48 Is this the right move?
01:50 Personally, I think it is.
01:53 I think it's time because, you know, your last guest brought on, highlighted a lot of
02:00 the concerns, right?
02:01 How is it going to be managed?
02:02 How is it going to be run?
02:03 However, this is a great time because it will enable wealth fund capital to flow in the
02:08 country.
02:09 For example, I did some research on Norway's sovereign wealth fund, which is the biggest
02:14 sovereign wealth fund on the planet.
02:16 It's the one that people like to copy.
02:18 Norway's sovereign wealth fund at the end of 2022, they had about $2.3 billion in Indonesian
02:26 equities, about $64 billion in Japanese equities, $17.66 billion in Indian equities.
02:35 And guess how much they have in Philippine equities at the end of 2022?
02:39 How much?
02:40 $1 billion.
02:41 $1 billion.
02:43 So one advantage from all this creating a sovereign wealth fund is having a deeper capital
02:49 market, having a bigger investor base, and having the Mahaarlika Fund, 70% of it is going
02:55 to be allocated within the country.
02:59 So 30% will be overseas, 70% can be deployed in real estate, infrastructure, fixed income
03:06 equities, as I was reading over the bill.
03:09 But Michael, could you give us some examples of third world countries who have done a good
03:14 job at managing their sovereign wealth funds with deficits, massive debt, and no surplus?
03:21 All right, so countries with deficits.
03:25 So I'm going to leave out a lot of the oil-based economies there.
03:30 Countries that have deficits right now that I can think of off the top of my head would
03:36 be some of the Latin American sovereign wealth funds, like the Chilean sovereign wealth fund,
03:40 they have a stabilization fund.
03:43 And from time to time, the government taps into that fund.
03:47 So yes, that is definitely a lightning rod topic.
03:52 I've watched a lot of your media cover that, right?
03:54 That's been a very big issue.
03:57 But you can still have a deficit and still run a sovereign wealth fund.
04:02 It's not going to totally destroy what you're trying to achieve.
04:08 There have been cases where wealth funds have been misfanaged, even when there is a budget
04:13 surplus.
04:14 So I just don't think that that's a major issue.
04:17 All right, corruption is among the main concerns of the funds critics.
04:23 What should the Philippines do to avoid a repeat of one of the major sovereign wealth
04:29 fund scandals here in the neck of the woods in Southeast Asia, Malaysia's 1MDB?
04:34 Yeah, I mean, Wolf of Wall Street, that's all over the press, right?
04:38 And all of the news with the Kazana sovereign wealth fund.
04:42 You also have sovereign wealth funds like in Angola, where it was improperly managed.
04:49 There's a lot of cases of these things.
04:52 Number one thing is best practices.
04:55 Look at what other sovereign wealth funds are doing.
04:57 A separation of concerns, a separation of powers.
05:02 So yes, the president can appoint some of these positions, but there are independent
05:06 directors.
05:07 There are directors coming from other entities that will be on the board.
05:12 Another point is transparency.
05:14 Are the books going to be open to the public?
05:16 Can the public see the returns of the sovereign wealth fund year after year after year and
05:22 what the investment holdings are?
05:24 That's very important.
05:25 And a lot of the sovereign wealth funds in the Middle East do not have that.
05:29 Those books are not open to the public.
05:31 So having transparency is actually really important and that will give the public a
05:36 bit of ease.
05:37 And the frequency of the reporting, right?
05:40 Is the report delayed two years out, three years out, right?
05:44 So having a consistency in reporting is very important.
05:47 And last but not least, having an auditor, having an independent auditor manage those
05:51 numbers.
05:52 All right.
05:53 So that's very important to the members of the board.
05:54 And we heard former finance secretary Gary Tevez saying that we need trust, transparency,
06:00 credibility among the managers that will be part of the board.
06:03 Where should we be looking for for these board members?
06:07 Should they be coming from the Philippines or should we be at independent directors who
06:12 are non-Filipinos or Filipinos who are from credible investment funds abroad?
06:23 I think the board should mostly be probably Filipinos from within the country and abroad.
06:29 You can't have an advisory board that's not an official board that can advise on certain
06:34 thematic elements.
06:35 So Tomasic Holdings, GIC, CIC, they all have these advisory boards where it's not a corporate
06:42 governance function, but a function saying, "Hey, is our fund on the right track?
06:47 What are some of the themes we should be investing into, whether it's ESG, AI?
06:53 Do we have too much risk in our portfolio?"
06:55 So you could bring in people from within the global community to oversee that.
07:01 And that's something, like I said, that other sovereign wealth funds have done.
07:04 They've recruited personnel from the IMF, people from private equity firms, from a broad
07:10 range of institutions.
07:11 But I think diversity is key.
07:13 You want to have a lot of different viewpoints to challenge each other on the board so that
07:18 the best outcome is there for the people of the country.
07:21 But yes, I think from the corporate governance standpoint, there's talent everywhere.
07:26 I mean, I've worked with a lot of Filipinos.
07:29 In finance, there'll be no problem finding the people to be on that board.
07:35 Thank you so much for this Investment Fund Management Exchange.
07:39 Sovereign Wealth Fund Institute President Michael Madwell.
07:44 And before we go, here are words from the Oracle of Omaha, Warren Buffett, on investing.
07:51 The best way to think about investments is to be in a room with no one else and to just
07:58 think.
07:59 If that doesn't work, nothing else is going to work.
08:04 And this is the exchange that makes sense of the facts and the figures and the ups and
08:07 downs of the business cycle because your business is our business.
08:11 I'm Rico Gizon.
08:12 Thanks for watching CNN Philippines.
08:14 Music and news.
08:15 News you can trust.
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