The Investments Sector of the Social Security System (SSS) has two main functions: to manage six SSS funds and to conduct treasury operations of the agency. Overall fund management and treasury operations include optimal asset allocation and securities allocation, as well as cash management activities such as collection and disbursement activities and liquidity management. “We’re the treasurer of the SSS, but we also do investment,” says Rizaldy Capulong, the current Executive Vice President of Investments Sector. He has been with the SSS for almost three decades, starting as Senior Actuarial Researcher for the state-run social insurance in early 1990s.
The Investments Sector is complex and diverse. As EVP Capulong puts it, the SSS cannot exist without it. By design, the Investment Sector is composed of two divisions (Treasury and Investments Support) and three groups (Fund Management, Capital Markets, and Lending and Asset Management). The Treasury Division is divided into three departments. First is Cash Management, which is in charge of receiving all revenues and disbursing all expenditures of the system. The revenues collected are mostly contribution collections or collections due to investment activities. Expenditures disbursed, on the other hand, are mainly benefits—pension, sickness, maternity, funeral, employees compensation, and also operating expenses, capital expenditures and investment placements. Second, Liquidity Management and Bank Deposits, which makes sure that the benefits are promptly funded and money is available when needed. Last is the Securities Settlement and Custody, which makes sure that all the transactions in the fixed income and equities market are promptly settled and acts as custodian of all proof of properties owned by SSS. The second division is Investment Support and has two departments. One is Accreditation, which handles the monitoring of third-party financial service providers like banks and remittance centers that serve as collecting and paying agents for the SSS as well as stock brokers, fixed income arrangers, government securities brokers, and insurance companies. The other department is Strategic Decision and Technical Support, which supports frontline operations of the Investments Sector as well as middle and back office support. This includes financial market analysis, systems and programming, and IT support, among others.
SSS manages six funds under the newly created Fund Management Group. The Social Security Fund (mainly pension), the Employees Compensation or State Insurance Fund (employee injury insurance), and the Employees Provident Fund (for SSS employees) are the three biggest funds. The other three are the P.E.S.O. Fund (personal equity savings option), the Flexi-Fund (for Overseas Filipino Workers), and the Mortgage Insurance Account (for housing loans). The strategies created by the Fund Management Group are then implemented by the two other groups—Capital Markets Group and Lending and Asset Management Group. The Capital Markets Group executes the transactions in the Philippine Stock Exchange and the Fixed Income Exchange and handles mutual funds and foreign investment as well as the hiring of both local and foreign external fund managers. The Lending and Asset Management Group handles loans such as salary, calamity, educational assistance, pension, and housing; and manages investment properties, real and other properties acquired (ROPA), and housing acquired assets. According to EVP Capulong, the Investments Sector handles over a trillion pesos in transactions every year.
PERFORMANCE IN THE PAST YEARS
Over the last 28 years, the average return on investment (ROI) of the SSS Investment Sectors is 10.4% with a volatility of 3.4% for a total investment income of P558-B. “In general, we have an average of about P30 billion in investment income for the last five years or so,” states EVP Capulong. “But what I think is remarkable about the investment performance of the SSS is the legacy it has left behind over the six decades of its existence in terms of socioeconomic development through its capital market activities as well as its lending activities which supported 324 schools, 135 hospitals, and 4,656 businesses nationwide as well as over 333,000 families of its private sector members who were able to shelter themselves through SSS housing loans. In addition, the phenomenal investment performance of the Employees Compensation or State Insurance Fund for the private sector prevented its bankruptcy 20 years after it was created in 1975, or about the mid 1990s when benefits were double the contributions in a year, but the investment income was double the benefits in a year. It could then be inferred that it was the investment income that enabled the Employees Compensation Program to survive up to now. Moreover, the current P488-B SSS funds can be considered as entirely investment income already as all contributions and some investment income were already used to pay for benefits and other expenditures which total P1.4-trillion over the 61 year history of the SSS.
In general, when we invest social security funds, we want to outperform a number of metrics like the inflation rate, the risk-free rate, and the wage growth rate. And definitely in the last two decades, we were able to do that.
Under the present SSS charter, RA 8282 or Social Security Act of 1997, the SSS board shall invest and manage the fund following principles of safety, yield and liquidity. “In general, when we invest social security funds, we want to outperform a number of metrics like the inflation rate, the risk-free rate, and the wage growth rate. And definitely in the last two decades, we were able to do that,” says EVP Capulong.
PROJECTS, PROGRAMS, GOALS
Around 2013, the KaltaSSS Collect Program, a tie-up between SSS and Local Government Units (LGUs), was implemented. Its purpose is to expand coverage, not only to private sectors and professionals under the self-employed program, but also to Job Order employees in LGUs. The program is similar to a self-employed arrangement, wherein the JO employee has to pay the entire contribution rate of 11%. It is quite a special case since their income is coming from a government entity, although there is no employer-employee relationship, unlike most SSS members who are on regular employment status in the private sector. The program generated roughly P1.6 billion in collections in 2018 from about 115 thousand contributors.
In terms of its lending program, the Investment Sector is exploring new products. In September 2018, SSS launched the pension loan. Before, only active members can apply for a loan, but last year, SSS started lending to pensioners as well. They can borrow, two, four, or six months’ worth of monthly pension and pay it over three, six, or twelve months. “I think this is very much in line with the program of President Rodrigo Duterte to help the Filipino people from their dependence on 5-6 lenders. We can offer a much more reasonable interest rate for our pensioners through that loan program,” explains EVP Capulong. “Although currently, the pension loan is limited to retiree pensioners who are below 80 years of age, I would think a long-term goal for this product line is to be able to give a pension loan to anybody who asks for it, who’s a pensioner, of course. But we have to do a lot of studies to be able to put in the right mix of features and safeguards for each kind of pensioner that would be allowed to borrow.” Prior to the pension loan, SSS has also started the educational assistance loan program, which is a joint project with the government, on a 50%-50% sharing. The government provided P3.5 billion funding to match the SSS’ P3.5 billion, to give out as educational assistance loan program to 70,142 children of SSS members.
By mandate, the SSS can do both domestic and foreign investments. However, everything is still domestic at present. But new things are happening. After insourcing for over 60 years, SSS has started to outsource investment management. The first step was to invest in domestic mutual funds, wherein three qualified in 2017 and 2018. By Social Security Commission approved accreditation criteria covering safety, yield, and liquidity, PhilEquity Fund, Inc. (Philequity Management, Inc.), Sun Life Prosperity Balanced Fund (Sunlife Asset Management Company, Inc.), and Philippine Stock Index Fund Corp. (BPI Asset Management and Trust Corporation) were the three best mutual fund companies for SSS. Hence, by mid 2018, SSS invested in them a total of P3 billion (P1 billion each). “We’ve started outsourcing fund management with domestic investments, we should be doing foreign investments as well via the same route, using mutual funds first and then external fund managers. SSS is currently in the process of hiring local external fund managers,” EVP Capulong tells LEAGUE. “Outsourcing foreign investment fund management will be more complex because we’ll probably need a global custodian and a foreign investment consultant as well to help in the rationalization, timing and data requirements.”
2019 is an exciting time for SSS as it waits for Senate Bill 1753 to be signed into law by President Rodrigo Duterte, repealing Republic Act 8282. In the new charter, SSS will introduce unemployment benefits, wherein displaced workers will be provided financial assistance equivalent to 50% of their average monthly compensation for at most two months. A gradual increase in monthly contributions will be implemented by increasing the contribution rate from 11% to 15% by 2025 as well as adjusting the minimum and maximum salary credit from P1,000-P16,000 to P5,000-P35,000 by 2025. Consequently, this will further strengthen the SSS pension fund. Also provisioned in the bill is to make Overseas Filipino Workers (OFWs) coverage mandatory, ensuring social security protection for the increasing number of Filipinos working abroad. “If it becomes a law, we will have more leeway, more flexibility in investments,” says EVP Capulong. For example, for Lending and Asset Management, the group will become more definite about the rules governing their property development activities.
For its treasury operations, the Investment Sector is looking at new channels of collection and disbursement, such as online credit card payments and accreditation of more non-bank remittance agents. For its lending operations, they are set to finish the Enhanced Loans Management System. For the previous year, they were able to improve housing loan collection by almost 100%, simply by sending billing letters after updating the database. “That was done December 2017, and true enough, from January to December 2018, we had a 90%-100% increase in collection for the housing loan,” shares EVP Capulong.
CHALLENGES, SOLUTIONS, MOTIVATIONS
The Investments Sector is pursuing activities to increase the ROI and investment income from the current average of P30 billion per year. Unfortunately, SSS is currently understaffed—with 70% vacancy in the executive level and 40% vacancy in the rank and file level. “We really need to hire new people. We are crafting new training and professional development programs. We have to come up with an enhanced Investment Professional Development Program, similar to what we did for our branch operations where the Branch Officership Program was implemented, wherein employees who want to become branch heads can undergo extensive training to help prepare them for promotion. We can do the same for the Investments Sector. We will give support to our employees who want to take investment related professional exams, and support their attendance in various seminars,” says EVP Capulong. Aside from the shortfall in human resources, the stock market is another challenge for investments. While the market went up in 2017, it experienced a full reversal in 2018. Thankfully, it’s holding up well so far this year.
Having worked in the actuarial side and investment side of SSS, the EVP has a mission and vision of increasing the SSS ROI and pursuing structural solutions to poverty. Hopefully, he would be given the resources and accomplish these eventually. “Social security is a right,” he states. “My motivation is for Filipinos to have enough for their retirement. People are so busy, they think about the now. We need to help them think about and prepare for the future.” — AVI CANALE