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Investing

Duterte pension boost sends Philippines fund hunting for yield abroad

Philippines President Rodrigo Duterte

The Philippine state-run pension fund for private-sector workers will invest overseas for the first time and buy more local stocks to boost returns after President Rodrigo Duterte delivered on a campaign pledge to increase pensions.

The 500 billion peso ($9.6 billion) Social Security System may invest as much as 37.5 billion pesos abroad, fund President Emmanuel Dooc said in an interview. SSS, which covers 36 million workers, may also buy up to 35 billion pesos more of Philippine stocks, adding to a 100 billion peso equities portfolio that is overweight utilities, he said.

"We want better returns," Mr. Dooc said. "We also don't want to put all our eggs in one market."

The Philippines joins a global trend of pension funds struggling to meet their commitments as longevity increases and investment returns dwindle — which the World Economic Forum in June said will lead to a $400 trillion shortfall in retirement savings globally.

Mr. Duterte's boost to pensions will cause SSS to run out of money by 2032, 10 years sooner than forecast, while a proposal to nearly double maternity leave entitlements could add a further 5 billion pesos to the fund's annual payments, Mr. Dooc said.

Mr. Dooc said that while he supports Mr. Duterte's initiatives, "it has to be done in such a way that it will not deplete the fund." He said he hopes lawmakers will this year amend the fund's charter to give it greater independence in making decisions, including raising member contributions.

SSS also needs more flexibility in investing, he said. Currently, it can hold 40% of funds in Philippine government bonds, 30% in local stocks and 10% in loans to members. It is authorized to invest 7.5% overseas, but hasn't previously done so.

Mr. Dooc also wants to offer more member loans but is near the ceiling. About 23% of the fund is invested in stocks, giving room to buy more equities.

The fund generated a 6.7% return last year, and placing some of its portfolio overseas will hopefully reap higher yields, he said. The benchmark Philippine stock index has fallen 1.2% this year after rising 25% in 2017.

SSS also plans to hire as many as eight domestic fund managers to each manage 1 billion pesos of stocks, fixed income or a mix of both, Mr. Dooc said.