Manolo Quezon is #TheExplainer Newsletter — The Great Sovereign Fund Boondoggle

Manuel L. Quezon III
6 min readDec 4, 2022


This week’s The Long View:

Sovereign wealth fund’s fork in the road | Inquirer

By: Manuel L. Quezon III@inquirerdotnet

Philippine Daily Inquirer / 05:07 AM November 30, 2022

Speaker Ferdinand Martin Romualdez and senior deputy majority leader Ferdinand Alexander Marcos III have filed a bill to create a sovereign wealth fund. Essentially, it would mandate the Government Service Insurance System (GSIS), Social Security System (SSS), Landbank, and Development Bank to pool their resources to be able to invest as a sovereign wealth fund. The fund would be under the direction of a board consisting of nominees of the participating government financial institutions, as well as two independent directors. The Romualdez-Marcos scheme comes at the heels of similar proposals dating back to the previous administration or even earlier. Back in 2016, Sen. Bam Aquino filed a bill (Senate Bill №1212) to create a sovereign wealth fund. In 2018, Sen. JV Ejercito filed a similar bill (SB 1764). In December of that year, then Finance Secretary Carlos Dominguez III was reportedly supporting legislation to unify the efforts of the SSS and GSIS in investments. Writing in The Diplomat in 2020, Mark Manantan, Emerson M. Sanchez, and Jayson S. Lamchek pointed to the scandals surrounding the government’s (mis)use of the Malampaya windfall funds, and speculated the development of the Benham Rise would risk the possibility of similar corruption-related scandals. Why not, suggested the authors, consider the creation of a sovereign wealth fund, which they linked to a 2016 proposal by Russell Stanley Geronimo.

According to the sponsors, the fund would be managed according to the Santiago Principles: 24 generally accepted principles and practices for sovereign wealth funds voluntarily endorsed by the members of the International Forum of Sovereign Wealth Funds. But there lies the rub; these are high-sounding and high-minded principles voluntarily subscribed to. As one shrewd observer put it, hearing of the proposal by the President’s cousin and son: “Expectation: Temasek. Reality: 1MDB.” Referring, of course, to the sovereign wealth fund of Singapore headed from 2002 to 2021 by Ho Ching, wife of Singapore’s Prime Minister Lee Hsien Loong, and the disgraced one of Malaysia which landed former prime minister Najib Razak and his wife in jail. The fantastic corruption surrounding Malaysia’s sovereign wealth fund included the Swiss and Singaporean governments cracking down on a Swiss bank, BSI, for its role in the sovereign fund mess. A quote from a report on the implications of both the Panama Papers (leaked private banking records) and the collapse of 1MDB by Andrew Bauer, senior economic analyst at the Natural Resource Governance Institute, summarizes the causes for concern: “Many [sovereign wealth funds] are either opaque or outright sources for corruption or patronage. Very few meet their macroeconomic objectives. There’s very little knowledge on how some operate, on who the beneficial owners are, on how their investment choices are made.”

Back in early May, there was talk in diplomatic circles that the Marcos Jr. administration would indeed establish a sovereign wealth fund. There seemed healthy skepticism over the possibility of finding someone willing to manage it, considering the shortened life expectancy of the SSS thanks to the populist decisions of former president Duterte. The saga of Malaysia’s sovereign wealth fund and exposés about other national funds such as Uganda’s also seems to have inspired a healthy discussion on the potential usefulness of such funds for money laundering, something that happened in the case of Malaysia, although the theoretical discussions were interestingly focused on the potential challenge of repatriating hidden funds abroad. Why on earth this would take up cocktail chatter time is beyond me.

The inclusion of Rep. Stella Quimbo among the bill’s cosponsors reassuringly suggests someone competent and believable can brief both media and the public on the merits of the bill. The idea is to go beyond using whatever piles of money the government has (sitting in reserve and for other purposes) more profitably, instead of being restricted to boring but safe government bonds, for example, other more exciting (though risk) instruments could be explored and used. The diplomatic scuttlebutt, that such a fund could provide cover for the coming home of funds squirreled away by public servants — then again, the same public servants or their friends and relatives would emphatically deny this ever took place, so why even speculate it might happen? — has even been answered by some who speculate in turn that a massive influx of hoarded foreign currency would be beneficial to our capital-starved economy. Win-win!

The name for this potential sovereign fund says it all: Maharlika. A modern scheme in retro garb.

Related readings

For Senate Bills see №1212 (Aquino) №1764 (Ejercito) both from the 17th Congress. I mentioned Why the Philippines Needs to Establish a Sovereign Wealth Fund in The Diplomat by Mark Manantan, Emerson M. Sanchez and Jayson S. Lamchek. See also the 2016 paper, Developing the Philippine Sovereign Wealth Fund, buy Russel Stanley Q. Geronimo (you can also find it in the Philippine Journal of Public Administration, 2016. I also quoted from a 2016 KYC360 Special Report, Sovereign Wealth Funds — Will 1MDB and the Panama Papers lead to greater transparency in the government investment sector?

In Nikkei Asia, Marcos’ cousin, son push $4.9bn Philippine sovereign wealth fund. In Reuters, Philippine governor voices caution over plans to create $4.9 bln sovereign fund. In the only in the Philippines department, Imee Marcos fears corruption in use of proposed Maharlika Fund. Some Tweets that may be useful: Albay 2nd District Rep. Joey Salceda shows media the safeguards they put into the proposed Maharlika Wealth Fund Act to keep it from going the way of Malaysia’s failed 1MDB and Salceda releases to media the latest version of the proposed Maharlika Wealth Fund Act which is currently pending before committee level. It has been referred to the Committees on Appropriations and Ways and Means for the budgetary and tax provisions.

See the World Bank on Sovereign Wealth Funds. A cautionary ADB note from 2009, Developing Asia’s Sovereign Wealth Funds and Outward Foreign Direct Investment:

The central objective of this paper is to evaluate the prospects for SWFs to serve as a major conduit for the region’s outward FDI. In principle, FDI represents an attractive means of earning higher returns on FX reserves than traditional reserve assets. In practice, the limited institutional capacity and the political sensitivity of state-led FDI severely constrains the ability of developing Asia’s SWFs to undertake FDI on a significant scale. Therefore, the potential for developing Asia’s SWFs to become major sources of outward FDI is more apparent than real.

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Manuel L. Quezon III

Columnist, Philippine Daily Inquirer. Editor-at-large Views strictly mine. I have a newsletter, blog, podcast, and Patreon.