Maharlika Investment Fund: Your Guide To Investing

The Maharlika Investment Fund (MIF) is the Philippines' first sovereign wealth fund. It was established to promote economic development by investing in key sectors such as infrastructure, energy, digitalization, and the fight against climate change. The MIF is expected to generate returns that support the government's economic goals and ease the burden on the national budget. However, there are concerns about its potential impact on public funds and possible mismanagement. The fund is managed by the Maharlika Investment Corporation (MIC) and is expected to be fully operational by the end of 2024.

The fund's purpose and expected returns

The Maharlika Investment Fund (MIF) is the Philippines' first sovereign wealth fund. It is designed to promote economic development by investing in key sectors such as public road networks, tollways, green energy, water, agro-industrial ventures, and telecommunications. The fund will be allocated across a variety of assets, including foreign currencies, fixed-income instruments, domestic and foreign corporate bonds, commercial real estate, and infrastructure projects.

The MIF is expected to generate returns that support the government's economic goals, as outlined in the Medium-Term Fiscal Framework, the eight-point Socioeconomic Agenda, and the Philippine Development Plan. The fund will provide the government with a long-term source of income and ease the burden on the national budget by providing additional funding for priority projects. It is also expected to widen the country's fiscal space, ease pressures on local funds, and reduce reliance on official development assistance in funding big-ticket projects.

The MIF will be managed by the Maharlika Investment Corporation (MIC), which will be responsible for the overall governance and management of the fund. The MIC will be governed by a Board of Directors with nine members, chaired by the Secretary of Finance. The other members include the CEO of the MIC, the president and CEO of the Land Bank of the Philippines, the president and CEO of the Development Bank of the Philippines, two regular directors, and three independent directors from the private sector.

Within the MIF, there will be sub-funds classified according to objectives. One sub-fund will have a long-term horizon and will focus on investing in profitable infrastructure, while another will have a short- to medium-term horizon and will focus on investing in capital market assets such as fixed-income securities and stocks. The MIC will identify financially and commercially viable infrastructure projects to invest in and will formulate investment strategies covering emerging megatrends such as the environment, social and governance, digitalization, and healthcare.

Overall, the MIF is expected to boost economic growth, create high-quality jobs, attract foreign investors, and propel the country towards higher growth.

The types of assets it will be allocated to

The Maharlika Investment Fund (MIF) will be allocated across a variety of assets, including:

Foreign Currencies

The MIF will invest in foreign currencies, allowing the fund to diversify its holdings and potentially benefit from fluctuations in exchange rates.

Fixed-Income Instruments

The fund will also allocate a portion of its assets to fixed-income instruments, such as bonds, which offer a stable source of income through regular interest payments.

Domestic and Foreign Corporate Bonds

MIF will invest in both domestic and foreign corporate bonds, providing exposure to the debt of companies operating in the Philippines and other countries.

Commercial Real Estate

The fund will allocate a portion of its assets to commercial real estate investments, which can provide a stable source of rental income and potential capital appreciation.

Infrastructure Projects

MIF will also focus on infrastructure projects, particularly those that are high-impact and contribute to the country's development goals, such as public road networks, tollways, green energy, water, and telecommunications.

Capital Market Assets

Within the MIF, there will be a sub-fund dedicated to investing in capital market assets, such as stocks and fixed-income securities, offering the potential for higher returns and diversification.

The sources of government funding

The Maharlika Investment Fund (MIF), the Philippines' first sovereign wealth fund, is designed to promote economic development by making strategic and profitable investments in key sectors. The MIF's sources of government funding are as follows:

Government Financial Institutions (GFIs) and the National Government:

• Land Bank of the Philippines (Land Bank) – 50 billion pesos
• Development Bank of the Philippines (DBP) – 25 billion pesos
• National government – 50 billion pesos

Annual Contributions:

Bangko Sentral ng Pilipinas: 100% of total declared dividends for the first and second years of the fund's establishment, up to a maximum of 50 billion pesos.

Government-Owned Gaming Operators and Regulators:

• 10% of Philippine Amusement and Gaming Corporation (PAGCOR) income
• 10% of income from other government-owned gaming operators and regulators

Department of Finance Privatization and Management Office:

• Sale of government properties to the Maharlika Investment Corporation (MIC) at fair market value
• Proceeds from the privatization of other government assets

Other Sources:

The MIF may also source funding from other avenues such as royalties and/or special assessments. Additionally, the MIC has the ability to issue bonds within and outside the Philippines, although these bonds will not be backed by the Philippine government.

The management and governance of the fund

The Maharlika Investment Fund (MIF) is managed by the Maharlika Investment Corporation (MIC). The MIC is expected to be fully operational by the end of 2024 and will be governed by a Board of Directors with nine members. The Board will be chaired by the Secretary of Finance, with the remaining members being the CEO of the MIC; the president and CEO of the Land Bank of the Philippines; the president and CEO of the Development Bank of the Philippines; two regular directors; and three independent directors from the private sector.

An Advisory Body will assist the Board of Directors in formulating general policies related to investment and risk management. This body will be composed of the secretary of the Department of Budget and Management, the secretary of the National Economic and Development Authority, and the Bureau of the Treasury.

The MIC will identify financially and commercially viable infrastructure projects to invest in and will formulate investment strategies covering emerging megatrends, such as the environment, social and governance, digitalization, and healthcare.

The MIF is expected to adhere to the Santiago Principles, which are generally accepted principles and practices to ensure the effective operations of sovereign wealth funds globally. It will also be governed by relevant investment and risk management guidelines.

The concerns and criticisms of the fund

The Maharlika Investment Fund (MIF) has faced a number of concerns and criticisms, including:

Unclear and contradictory goals

The stated goals of the MIF are broad and subject to discretionary focus and interpretation by the Maharlika Investment Corporation (MIC). There are concerns that the fund's objectives remain confused, with President Marcos himself referring to it as a "sovereign wealth fund" and "strategic investment fund".

Independence from national plans

There is a lack of clarity around the MIF's adherence to the Philippine Development Plan and the Medium-Term Fiscal Framework. It is assumed that the fund will follow these plans, but this has not been explicitly stated or elaborated on.

Unproven effectiveness

There is no evidence to suggest that the MIF will generate additional investment and economic activity beyond what would naturally occur without its existence. Critics argue that there is no gap or "missing institution" in the Philippine economy that necessitates the creation of a sovereign wealth fund.

Impact on financial stability

The MIF could jeopardise funding sources like the DBP and Land Bank, reducing their lending capacity and affecting farmers and micro-entrepreneurs. There are also concerns that public funds put into the MIF may disappear in the event of losses, as the fund can issue debt instruments and there are no provisions regarding bankruptcy and resolution.

Governance and feasibility doubts

The governance structure, exemptions from regulations, and compatibility with the current global environment raise doubts about the feasibility of the MIF. There are concerns about potential mismanagement, with critics pointing to the 1Malaysia Development Berhad scandal as a potential risk. The fund's governance structure has also been criticised as lacking independence from politics, with all members of the MIC board being presidential appointees.

Lack of consensus

The MIF lacks sufficient consensus among critical stakeholders, with doubts remaining among business, academia, and the public. A group of 12 organisations, including the Foundation For Economic Freedom, Competitive Currency Forum, and Filipina CEO Circle, made a collective statement against the proposal.

Frequently asked questions