Mirroring a Different Image: Policy Options from the Norwegian Government

Pension Fund Global relevant to Philippine House Bill 6608 or The Maharlika
Investment Fund Act

In fulfillment of the requirement in

PUBLIC ADMINISTRATION

NARAISO, CARL JUNE G.

Proponent

Submitted to:
Professor Neil Ryan Pancho

March 23,2023
I. INTRODUCTION

Background of the Study

The Norwegian Government Pension Fund Global (GPFG) is one of the most
prominent sovereign wealth funds (SWF) in the world, which was formally
established in 1990 and has since become a hallmark model to other countries'
state-owned investment funds. The basic foundation for creating the fund was
significant for two reasons. First, it was established to support the long-term
management of surplus revenues generated by Norway's petroleum industry and
to accommodate government savings required to meet the anticipated increase
in public pension expenditures in the coming decades due to an aging population.
In 2006, the name of the fund was altered from its previous name (Petroleum
Fund) to its new name, Government Pension Fund Global (GPFG), to highlight
this priority (Halvorssen, 2011). Second, the fund was designed to safeguard
Norway's economy from a resource curse recognized as a 'Dutch disease.'
Numerous countries' historical experiences have shown that a sharp increase in
a country's natural resources can quickly affect currency exchange, increase
domestic prices, reduce global competitiveness, and lead to de-industrialization.

The fund already holds 1.3% average shares in over 9,300 companies
distributed throughout market sectors, countries, and currencies to ensure better
risk diversification and establish broad exposure to international growth and
value creation. It is diversified into equities, bonds, real estate, and infrastructure
investments for renewable energy. The fund's investment decisions are based on
extensive research and evaluation of the trends and developments in financial
markets and the global economy. As of June 2022, it has an estimated market
value of US $1.36 trillion and a cumulative return of US $627 billion (Norges
Bank, 2022). Norges Bank Investment Management's return calculation
framework is derived from the international global Investment Performance
Standards (GIPS) standard (Norges Bank, 2022)
.
 The fund's formidable reputation includes stellar governance, transparency,
ethical values in investments, and a dynamic structure. Norway's Government
Pension Fund Global (GPFG) is universally recognized as transparent and
implemented effectively, and it is acknowledged by media worldwide for
guiding prudent investment grounded on social and ethical principles. (Clark and
Monk, 2010). However, while the Yale Model is widely recognized as a leading
figure in endowment management (Swensen, 2000), the Norway Model for
endowment investment has now emerged as a credible and comprehensive
supplement to the Yale model. GPFG received the highest score of 97% among
53 sovereign wealth funds from 37 countries (Truman, 2010).

Philippines' House of Representatives on December 15, 2022, approved

House Bill No. 6608 or the Maharlika Investment Fund (MIF) on the third and
final reading garnering a large vote margin (279 against 6) shortly after
Philippine president Ferdinand Marcos Jr. certified the bill as 'urgent' despite the
controversial aspects of the bill. Following multiple hours of floor debate on the
bill, several lawmakers in the House of Representatives added a few
amendments to resolve issues. Despite the amendments made by the lawmakers
at the lower house, the importance of extensive refinement of the bill or even
questioning the bill itself before it reaches the hands of the president persists.
This study aims to embark on the critical aspects of Norway’s Government
Pension Fund Global to resemble policy options of Philippines’ Maharlika
Investment Fund. This will help create an efficient, sustainable, transparent, and
responsible sovereign wealth fund that will benefit both current and future
generations in the Philippines.
Statements of the Problem

1. What are the socioeconomic challenges revolving House Bill No. 6608
or the Maharlika Investment Fund?

2. What are the critical aspects of Norway’s Government Pension Fund

Global to resemble policy options of Philippines’ Maharlika Investment
Fund?

Theoretical Framework / Approach

The creation of the Maharlika Investment Fund (MIF) involves two major
factors: policy and politics. Bachrach and Baratz (1962) identified power as
either diffuse (pluralist) or centralized (elitist), depending on which approach to
take on. Pluralists believe that the exercise of power is far more critical than the
source of power. It also implies participation in decision-making, which may
only be analyzed after a rigorous analysis of a sequence of real choices. Their
concerns are (a) 'critical political decisions' as compared to regular political
choices, (b) people who engaged in the decision-making process, (c) obtaining
an unqualified opinion of their actual conduct throughout the policy mediation
process, and (d) deciding and evaluating the conflict result.

Professor Dahl's definition of 'key' political decisions as issues involving

actual disagreement among two or more groups is refuted by Bachrach and
Baratz (1962) because groups can still have preferential differences of opinion
on both critical and irrelevant issues. The distinction between critical and
irrelevant issues cannot be developed expertly without examining the
community's "mobilization of bias"; of dominant beliefs, political mythologies,
traditions, and institutions that favor one or even more organizations with special
interests at hand. With this knowledge, it is definitive that any dispute with the
'predominant values' or the existing 'rules of the game' would necessitate a
'critical' issue, while anything else is regarded as irrelevant.
 In an elite-ruled society, ideologies, attitudes, and opinions are skewed to the
point of creating a false reality effect, which refers to the likelihood of attributing
one's own cognitive and behavioral choices and judgments as relatively
conventional and associated to rules and norms while interpreting alternative
responses as strange, perverse, or inappropriate (Ross et al., 1977). It occurs
when large community segments accept the elite's manipulated and ostensibly
self-imposed norms and goals. Measuring influencing factors exclusively
regarding the ability to initiate and veto proposals ignores the possibility of
influence or power being exercised in restricting the scope of initiation
(Bachrach and Baratz, 1992).

The study considers the ideological function of hidden power concerning

Bachrach and Baratz (1992) two-face power theoretical framework/approach.
Since the organization is the mobilization of bias, which organizes issues into'
while others are 'organized out,' all forms of political organization have a bias in
support of the exploitation of certain types of conflict and the suppression of
others (Schattschneider, 1960). In a nutshell, the study acknowledges the
influence of hidden power in the Philippine political sphere through influential
figures' deception of a political agenda to portray that community power is at
work when, in reality, it was manufactured by just a few. To substantiate it
further, in the assumption that House Bill No. 6608 Maharlika Investment Fund
is created through the mobilization of bias (Bachrach and Baratz, 1992), this
study thoroughly scrutinizes the major and minor elements of this bill to the
benefit of the bill or fund itself.

Methods and Materials

Because the goal of the study is to determine the relevance of the Government
Pension Fund Global of Norway towards House Bill No. 6608 or the Maharlika
Investment Fund, the study utilizes documentary research method to gather
academic sources of information to offer accurate, scientific, and realistic
solutions to the problem of the study. The documentary research method entails
the examination of documents containing information on the phenomenon under
investigation (Bailey, 1994). This method is used to investigate and classify
physical sources, most commonly written documents in the private or public
arena (Payne and Payne 2004). It is equally good as, and sometimes better than,
social surveys, participant observation, or in-depth interviews. The materials
used in the study include research papers, laws, news articles from credible news
organizations, press releases, government proceedings, and position papers. The
contents of these documents are then analyzed and scrutinized to the relevance
and benefit of the study.

Scott (1990) defined quality control conditions for dealing with documentary
sources as (a) trustworthiness, (b) accurate representation, (c) interpretation, and
(d) Authentic Value. Trustworthiness identifies if the document is typical of its
kind. Accurate representation identifies if the documents concerned are
representative of the totality of the pertinent documents. Interpretation identifies
the evidence as clear and understandable. Authentic value describes how
genuine the evidence from an implacable source is.

Silverman (1993) categorizes documents as (a) files, (b) statistical logs, (c)
official proceedings transcripts, and (d) photographs. Documents and records
are differentiated by Guba and Lincoln (1981). Any written statement
determined under an individual or agency for the reason of confirming or
refuting an event is termed as a record (Guba and Lincoln, 1981). It is a reflexive
process in confronting the 'moral foundations of social inquiry,' rather than
simply 'recording facts' (Coles, 1991). It cannot stand alone, and must be
discussed within the context of a theoretical framework to fully understand
the contents it brings (Coffey and Atkinson, 1997).

Numerous researchers (Bailey 1982; 1994; Webb, Campbell, Schwarz, and

Sechrest 1984; Treece and Treece 1982; Polit and Hungler 1991) defined that
document research includes the following: (a) reports, (b) institutional
 memoranda, (c) government proceedings and proclamations, (d) census
publications, (e) diaries, and other written, visual, and pictorial sources in
multiple kinds. On a parallel account, Denscombe (1998) advocates that official
statistics and government publications are an attractive approach for the social
researcher. Medical records (Rees, 1981), school reports (Woods, 1979), health
visitors' case records (Dingwall, 1977), and classifications of causes of death are
all concerned with the generation and consumption of records and documentary
data (Prior, 1985). All researchers who use the documentary method must
examine the key concern regarding the types of documents and their ability to
serve as reliable evidence sources on the social world.

This study utilized government proceedings and publications such as (i) Acts
and Regulations, (ii) Reports of Commissions and Committees, (iii) Annual
Reports, (iv) Official Gazettes, (v) Speeches, (vi) Quarterly Reports, (vii)
Financial Reports, (viii) White Paper, (ix) Parliamentary Papers, (x) Statistics,
(xi) Climate Change Reports, (xii) Policy Documents, and (xiii) Guidance
Papers. It also utilized media reports such as (i) Editorial Pieces, (ii) Feature
Stories, (iii) Investigative Reports, (iv) Breaking News Reports, and
(v) Political Reports. Additionally, the study utilized news interviews such as
(i) Straight News Interviews, (ii) Feature Interviews, (iii) Investigative
Interviews, (iv) Live Interviews, and (v) Expert Interviews. Furthermore, it
utilized research journals such as (i) Academic Journals, (ii) Open Access
Journals, (iii) Social Science Journals, (iv) Review Journals, (v) Conference
Proceedings, (vi) Online Journals, (vii) Government Research Journals, and
(viii) Student Journals.

II. LITERATURE REVIEW

This section discusses the relevant literature and studies prominent to the
significance of GPFG, highlighting its salient features to aid the
implementation of the Maharlika Investment Fund if enacted into law.
 Furthermore, it also gives an overview of the provisions incorporated in the bill
for further analysis.

HOUSE BILL 6608 OR THE MAHARLIKA INVESTMENT FUND ACT

The House of Representative's speedy approval of House Bill 6608 or

the Maharlika Investment Fund Act under the directive of urgency by President
Ferdinand Marcos Jr. sets to be a purposeful state policy for job generation,
partnership formation, infrastructure expansion, food and energy security,
investments and trade promotion, and welfare improvement of Filipinos. (House
of Representatives, 2022). The Philippine government highlights the
significance of proper preservation and optimization of government financial
assets and enhancing intergenerational administration to stabilize the
macroeconomic structure of the country. The objectives of the MIF are (1) to
create regular and steady investment income, while adhering to tolerable risk
limitations in order to protect and optimize the fund's long-term value, (2) to
achieve the highest possible absolute return leading towards maximizing
financial growth on investments, and (3) to fulfill liquidity and security
requirements that ensure profit. An established Maharlika Investment
Corporation shall manage and govern the fund. Its corporate powers enshrine
the authority to join into contracts; rent, acquire, sell, and dispose of personal
and real property; to sue and be sued; to perform all matters deemed necessary
to uplift the MIF's purposes.

The explanatory note of the measure utilizes elements from other Asian
nations' prosperous SWFs like Singapore (GIC) and Hong Kong (HKMA IP).
However, the MIF's initial capitalization will not come from excess wealth,
foreign reserves, or natural resource extraction revenues, unlike the GPFG of
Norway. Instead, the required seed capital will be outsourced from founding
government financial institutions (GFIs), including LBP (₱50 billion), DBP
(₱25 billion), and BSP (100% income dividends from the previous year of the
Act's effectivity based on R.A. 11211 computation). These founding GFIs may
increase equity contribution for the MIF. Subsequent annual contributions to the
fund shall be outsourced from the BSP, PAGCOR, POGOs, royalties, special
assessment tax on natural resources, income from privatized government assets,
and public loans. It puts several aspects of the seed capital and the GFI's,
including identified GOCCs' return of investment (ROI), into question. Article
3, Section 11 vaguely stipulates the limitations to which the GFIs guarantee
equity or debt towards the MIF. There is no equity contribution ceiling;
indistinct provision or mandate that rationally determines the initial capital's
form, whether from financial securities or accrued debt, and unidentified net
profits share or interest to GFIs and other identified GOCCs that provided initial
and subsequent equity contributions to the MIF.

Withdrawals shall only transpire after at least five (5) years of investment
operations and one year or shorter as determined by the Board shall the
withdrawals' notice period occur to ensure the fund's growth. Also, it prohibits
any withdrawals from the MIC that will reduce the MIF to an amount lower than
its initial capitalization (House of Representatives, 2022). The MIF's permissible
investments are bound to stringent adherence to investment and risk
management regulations. The Board of Directors shall allow investments such
as (1) cash, foreign exchange, metals, and diverse commercial goods; (2) fixed-
income securities released by sovereigns, quasi-sovereigns and supra-nationals;
(3) local and international corporate bonds; (4) common, preferred, or hybrid
disclosed or undisclosed equities; (5) Islamic investments such as Sukuk bonds;
(6) co-investments or joint ventures; (7) collective and exchange-traded funds
invested in underlying assets; (8) mutual funds and exchange-traded funds
(ETF) in underlying asset investments; (9) infrastructure and commercial real
estate programs; (10) loans and guarantees to, or involvement in consortiums or
joint ventures with, Filipino and international investors, either in minority or
majority position belonging to housing, agricultural, commercial, energy,
mining, industrial, and other enterprises that may be necessary or helpful to the
economic progress of the Philippines or significant to the interest of Filipinos;
and (11) board-approved investment ventures (House of Representatives, 2022).

The Maharlika Investment Corporation will be governed by a 15-member

board of directors composed of (1) the Department of Finance secretary as the
chairperson; (2) the CEO of the MIC; (3) the President of LBP; (4) President of
the DBP; (5) seven regular members that represent the fund's contributors with
seats allocated in proportion to their investment contribution; and (6) four
independent directors from the private sector selected by the advisory Board.
This flags a question of transparency on the formula or basis of the Board of
directors' structure, which is not stipulated in the articles or sections of the bill.
For equal representation as it affects the decision-making process, it is crucial
that the BOD's number of seats will reflect the investment contribution of an
entity. In this scenario, the provision already mentioned four (4) independent
directors from the private sector, even without prior knowledge of the total
figure of shares or investment contribution they delivered to the MIF. According
to the SEC Code of Corporate Governance (2002), the Board may need extra
credentials for directors such as (1) educational level; (2) age requirement; (3)
sufficient competency and business knowledge; (4) integrity; and (5) diligence.
However, in the bill's provisions, there is no classification, qualifications, or
even ethical considerations that constitute the MIC's chief executive officer
(CEO); the seven (7) regular members of the MIC, despite stating the
proportionality of their investment contribution to their seats in the Board, and
the four (4) independent directors from the private sector. It is counterintuitive
for the government not to set these salient requirements for the Board of
directors, given the perceived adherence toward accountability, transparency,
and sound governance principles.

Article 7 of the provisions of House Bill No. 6608 stipulated several

exemptions and privileges, which include (1) exemption from the GOCC
Governance Act of 2011; (2) Tax exemptions; (3) exemption from the
 Government Procurement Reform Act; (4) exemption from the Salary
Standardization Act; and (5) Designation and Secondment. These exemptions
and privileges could adversely translate to produce sociopolitical and
socioeconomic consequences as they could create havoc or controversies during
the implementation stage of the Act if enacted. Furthermore, the purpose of these
exemptions and privileges are undisclosed in the bill's provisions which, again,
contradict principles of transparency, accountability, and good governance set
forth by the bill's authors.

GOVERNMENT PENSION FUND GLOBAL

Historical Development. In 1971, Norway started exploiting their country's gas

and oil reserves. Nineteen years later, the Petroleum fund started, now termed
the Government Pension Fund Global. The GPFG's goal is to utilize income
from the oil reserves of Norway without being detrimental to the overall revenue
stream to the government, hence, slowing down the effect of fluctuating oil
income on expenditures made by the government. It is also a tool for long-
standing economic savings ensuring intergenerational oil wealth benefits
Norwegians, satisfying a pivotal ethical obligation. Furthermore, it is mandated
to exert sound corporate administration and foster imperishable social,
environmental, and economic development. Today, GPFG is hailed as the 'gold
standard' in the SWF universe, according to the European Commission
president. The GPFG received the highest score of ten (10), belonging to the
most transparent SWFs globally in the Linaburg-Maudell Transparency
Indicator. This rating is grounded on numerous factors such as (1) disclosing the
fund's history about its creation, wealth sources, and government ownership
composition; (2) annual independent audit reports; (3) disclosing ownership
shares in companies, and (4) guidelines on investment policies, ethical
principles, and guidelines' implementation (Eldredge and Halvorssen, 2014).
Institutional and Legal Framework. Despite its creation in 1990, funds were
not transferred to the GFPG until 1996. The fund mechanism is designed
efficiently, so that fund transfers are only made when an excess budget is at
hand. Due to the 1990-1995 recession in Norway, budget deficits occurred.
Hence, no transfer was made to the Fund until 1996, when fund transfers were
made from the preceding year's first budgetary excess. (Skancke, 2003). The
Norwegian government's net cash flow from oil and gas activities is transferred
as a whole towards the GPFG via the state budget, while the transfer size is
relative to the fiscal policy guidelines set during the annual budget preparation.
The guidelines intend withdrawals to parallel the GPFG's expected long-term
yearly actual return of about 4%. Thus, Figure 1 shows that the GPFG applied
fiscal discipline to the government's annual budget. In good economic times,
when tax revenues are enormous, <4% of the Fund is given back to the state
budget for general spending. However, over 4% is spent in unfavorable
economic conditions to balance the cycle. The GPFG prevents the government
from excessive spending by adhering to the 4% rule. Once the Fund becomes
very large, even this expenditure could be excessive. Since 2001, when the
spending rule and fresh mandate for the monetary policy were created, the
Central Bank of Norway (Norges Bank) has advised that 4% spending is
excessive (Chambers et al., 2012).

Figure 1: GPFG’s investment-revenue-expenditure flow

 The Norwegian state officially owns the GPFG, but significant modifications
to its investment plan are reported first to Parliament before its implementation
to garner political consensus. The Ministry of Finance decides GPFG's overall
investment plan and supervises operational management delegated to the
NBIM or the Norges Bank Investment Management. It is not an independent
legal entity yet; instead a deposit account at the Norges Bank. The Ministry of
Finance created a publicly disclosed management agreement with the Norges
Bank that recognizes the operational management jurisdiction of the NBIM over
the GPFG. GPFG's ownership is limited to a maximum of 10% of the shares in
any company (NBIM, 2019). Its funds are only invested in international financial
instruments (35%-40% in bonds, 60% in stocks, and 5% in real estate) around
more than 70 arising and established markets. The GPFG differs from typical
pension funds because it is not targeted for certain liabilities but rather a tool for
overall State savings. It is not grounded in short-term liquidity requirements and
bears a more significant risk scope than many similar SWFs due to its highly
long-term investment sphere. As of February 2023, the GPFG's market value is
NOK 13.66 trillion or approximately US $1.278 trillion. It is currently invested
in 9,228 companies in seventy nations and four investment sectors (equity, bond,
real estate, and renewable energy infrastructure (NBIM, 2023).

The operational management of GPFG cannot be monitored and governed in

detail by the Ministry of Finance. The regulatory authority simply specifies the
overall investment plan. Norges Bank is in control of making investment choices
independently, autonomous of the Finance Ministry. Norges Bank's executive
board is responsible for accepting investment strategy and other high-level
matters. The chairman of NBIM is in charge of day-to-day operations (Ministry
of Finance, 2018). In this respect, the chairman of the NBIM submits a monthly
report to the Norges Bank manager but does not engage in internal deliberations
about the Central Bank's overall monetary policy (Skancke, 2003).
Figure 1: GPFG’s governance structure

Source: Norges Bank 2018

Figure 2 shows the hierarchy of supervision. NBIM submits an in-depth

yearly report on the management of the GPFG. It explains the methods of
managing the fund, including a list of companies GPFG invested in,
information on investment outlook, and the electoral process of external
managers. Furthermore, NBIM reports to an independent entity and publishes
quarterly reports that include critical revenue and cost data. The reports are
published online on NBIM's official website (Skancke, 2003).

Figure 2: Audit of GPFG

Source: Norges Bank 2018

During the annual spring session, a white paper report to the Parliament from
the Ministry of Finance regarding the fund's management is made available to
the public. The annual report delivered by NBIM is also accessible in the report's
attachment. The general concerns with fund capital management are described
in the Ministry of Finance's reports. More broad themes, such as oil revenue
management, the amount of oil revenue for spending, and GPFG's influence on
the economy, are conversed during the autumn session jointly with the annual
budget preparations (Norwegian Ministry of Finance, 2006). The Office of the
Auditor General conducts the final fund audit, which is reported straight to the
Parliament (Backer, 2009).

Investment Strategy. In the early years, GPFG only invested in fixed-revenue

security such as government bonds and only in 8 countries for government-
guaranteed investment-grade securities (Norwegian Ministry of Finance, 2014).
By the 1st quarter of 1998, Norges Bank Investment Management (NBIM) was
established as a management bureau for GPFG's plan on equity investments,
transferring 14 billion euros worth of assets to NBIM (Skancke, 2003).
Following this, the fund began investing in equity investments with an initial
share of 40%. The theory behind this surge was that, in the long run, equities
would outperform government bonds in terms of profits. It was presumed that
diversifying investments in multiple asset classes spread out risk (Ministry of
Finance, 2014). Few emerging markets became part of GPFG's equity
investments in 2000, expanding across 21 countries. Non-government
guaranteed bonds were added to the fixed-revenue index in 2002. Stock
investment shares increased from 40% to 60% in 2007. The range of stock
investments increased even more, including all emerging markets. (Norwegian
Ministry of Finance, 2014). In 2008, the GPFG was again permitted to lay
investment in real estate up to 5%. Major European cities were the breakthrough
investments in real estate. After 2013, GPFG's investment plan was revised to
open for worldwide real estate investments (Ministry of Finance, 2014).

Today, GPFG's investments are spread across 72 nations and over 9000
companies (Norges Bank, 2017). Figure 1 shows the highest percentage of
GPFG's investments consisting of equity investments (67.6%), fixed-income
investments (29.7%), and investments in unlisted real estate (2.7%). Figure 2
shows that GPFG's top 3 investments are in finance (23.2%), industry (13.5),
and technology (13.1%) sectors.

Figure 1: Investment classes of GPFG for the 3rd Quarter of 2018 (%)

Source: Norges Bank 2018

Figure 2: GPFG Equity Investments’ sectoral distribution for the 3rd

Quarter of 2018 (%)

Source: Norges Bank 2018

Figure 3 shows that North America (41%) got the highest percentage in
GPFG's investment, followed by Europe (36%). On a country-based level, the
top 3 investment distributions are within the United States of America (36%),
the United Kingdom (8.8%), and Japan (8.7%) (Norges Bank, 2017).
 Figure 3: GFPG’s regional distribution of investments for the 4th Quarter
of 2017 (%)

Source: Norges Bank 2017

The main reasons GPFG has become the most significant wealth fund and its
investments grew enormously are transparency and excellent management.
Since its inception, many papers analyzed and articles produced have brought
attention to transparent management. The Council on Ethics is a critical
component of this.

The Council on Ethics. Decisions and actions by society's most significant

institutions are the outcomes of political bargaining, and it is improbable that all
of the values expressed in Norwegian policy can be defined as a cohesive set of
principles. To guarantee that the GPFG's ethical considerations are well-
anchored in Norwegian policy's values, the main normative qualities consistent
over time must be examined (Norwegian Ministry of Finance, 2003). The GPFG
is widely recognized as the world's most respected model of an excellent
framework, including both ethical investing strategy and transparency aspects,
despite essential criticism of overemphasizing procedural justice and ethical
investing at the cost of long-term performance impact. The Council on Ethics
for the GPFG sets ethical considerations for promoting national and global
justice reflective of its direction. According to the Ministry of Finance (2014),
its composition and organization are as follows: (1) composed of five members
(Chairman, Vice-Chairman, and three other members) based on nomination by
Norges Bank and appointment made by the Ministry of Finance (4-year tenure);
(2) The Council on Ethics operates autonomously and independently. Its
composition must guarantee that it embodies the requisite skills to carry out its
tasks as outlined within those guidelines; (3) The fiscal budget and members'
salary schedule of the Council on Ethics is determined by the Ministry of
Finance; (4) The Council on Ethics employs its secretariat, administratively
governed by the finance ministry. The Council on Ethics ensures that the
secretariat has established proper processes and practices; (5) The Council on
Ethics must create a yearly operating plan and present this to the Ministry of
Finance. Priorities for its pursuits must be clearly defined, and (6) The Council
on Ethics must have a regular work evaluation and create an annual report on its
activities submitted to the Ministry of Finance no later than three months after
the end of each calendar year.

The Council on Ethics is an integral element around the Socially Responsible

Investment (SRI) judgments of the GPFG since the Norges Bank and the
Ministry of Finance typically adopts its recommendations (Clark and Monk,
2010). The Council on Ethics creates ostensibly sensible advice for the Ministry
of Finance to reach decisions on blatant corruption, massive infringements of
human rights, severe environmental destruction, excessive emissions of
greenhouse gas, and gross offenses of basic ethical considerations acknowledged
in international law (NBIM, 2018). These legally binding regulations prevent
the Fund's cooperation (through its ownership of companies) in excessively
unethical actions, particularly about the environment or fundamental human
rights (Chesterman, 2008). It also ensures the existence of fact-based evidence
to back up the allegations against a company. Hence, before deciding on
exclusion, the Finance Ministry recognizes if other steps may be best suited to
minimize the likelihood of consistent norm infringements or perhaps adeptly
suitable for similar steps like active ownership through the NBIM.
 The distinction between NBIM and the Council on Ethics is critical. It
enables the Council on Ethics to concentrate only on ethical problems without
being sidetracked by the financial ramifications of its decisions through the
influence of NBIM. By the end of 2017, 152 firms had been removed from the
Fund's investment portfolio, including 69 companies anchored on the product-
based coal criterion (NBIM, 2018). It is a net final divestiture figure since some
companies have verified improvements in their practices or policies that allow
them to be eligible for GPFG's reinvestment. A company under observation or
excluded can provide factual information and feedback to the Council. When the
Council suggests exclusion or observation, the NBIM should examine if affiance
with the company is preferable or not. After decisions are already taken, it can
already be disclosed to the public (Council on Ethics, 2016). Public disclosure
of a company's exclusion from the Fund's portfolio is part of its 'gold star'
reputation viewed as high-level 'naming and shaming' (Albright Group and
Chesterman, 2008).

Not until sustainable development is prioritized over financial concerns will

the Council on Ethics' regulating function be maintained in an autonomous
organization answerable exclusively to the Finance Ministry because it speaks
for Norwegians as its owners. In presenting advice to the Ministry, the Council
transforms into a quasi-judicial authority (Eldredge and Halvorssen, 2014). In
some instances, greater independence for the Council on Ethics takes an appeal.
Yielding the Council broader power for company observations and exclusions,
instead of merely providing recommendations to the Finance Ministry, will
undoubtedly remove the decision further from political influences.

The Council on Ethics must gain jurisdiction over NBIM concerning ethical
issues. However, this is incompatible with the present framework of the GPFG,
requiring the Finance Ministry to modify NBIM's mandate. The Council on
Ethics may decide in specific instances on excluding companies. In problematic
matters, the Ministry of Finance could approve or reject a suggestion within six
months without rethinking the full investigation of the Council on Ethics. To
prevent damaging the GPFG's validity in international markets, the Council on
Ethics (not a legal tribunal) must endorse a conventional trial procedure
involving rules on due process if the Ethics Guidelines evolve into legal
obligations (Eldredge and Halvorssen, 2014).

Criteria for risk-based divestments. Product and conduct are two centric criteria
in observing and excluding companies from the fund's equity and fixed-income
portfolios. For product-based criterion, the GPFG exclude investments in
companies that themselves/entities they manage (1) acquire or manufacture
weapons or their essential parts such as biological, chemical, nuclear, non-
detectable pieces, blinding lasers, and incendiary weaponry, as well as
antipersonnel explosives and cluster munitions that infringe human rights
principles in its regular usage; (2) manufacture tobacco and tobacco-products;
and (3) manufacture cannabis for recreational use. Observation or exclusion of
mining & electric companies which themselves or their controlled entities (1)
gain 30% or more revenues from thermal coal; (2) operations rely on 30% or
more of thermal coal; (3) annual extractions of thermal coal greater than 20
million tons, or (4) generating electricity from thermal coal above 10,000
megawatts. For conduct-based criterion, observation or exclusion in the fund's
portfolio is determined based on the intolerable risk contribution or
responsibility of the company including (1) severe/organized violations of
human rights; (2) grave infringements of individual rights in times of conflict or
war; (3) selling weaponry to states involved in armed hostilities that utilize
weapons in manners that incorporate severe and systemic infringements of
international regulations on the conduct of conflicts; (4) selling weapons or
military equipment to states with investment restrictions on government bonds;
(5) excessive environmental destruction; (6) pursuits or omissions at the
corporate level, resulting in undesirable emissions of greenhouse gases; (7)
extreme financial criminal offense or extreme corruption, and (5) similar
extremely significant transgressions of fundamental ethical principles.
 Norges Bank Investment Management (NBIM) decides to exclude
companies against the GPFG's investment portfolio or place them under
observation. The exclusions made as of January 1, 2015, come from the
executive board of NBIM. Prior to this, the Ministry of Finance decided on the
matter. The decisions are derived from the recommendations of the Council on
Ethics. Decisions for the product-based coal criterion are anchored on NBIM's
recommendations. The GPFG divested from 74 companies in 2022 following
assessments of environmental, social, and governance (ESG) risks such as
human and labor rights abuse, biodiversity depletion, deforestation, corruption,
and tax violations (NBIM, 2022) Figure 1 and 2 shows companies that are
currently under observation or excluded from GPFG's investment portfolio.
Figure 3 shows the tally of risk-based divestments made by the GPFG from
2012-2022.

Figure 1: Companies under observation or exclusion

Source: NBIM
 Figure 2: Companies under observation or exclusion

Source: NBIM

Figure 3: Risk-based divestments from 2012-2022

Source: NBIM

SANTIAGO PRINCIPLES

As sovereign wealth funds have evolved into a mighty global investment

giant in recent years, numerous key players from significant economies
expressed deep concern. Critics espoused that sovereign wealth funds promote
a revolutionary idea of state capitalism while risking global free-market
principles, notwithstanding the endangerment to national security and economic
avidness of the countries where investments are poured in. Through the
existence of SWFs, governments are prescribed to utilize SWFs as a powerful
and unique tool in sovereign market participation and not merely ensure
proficient market operations in stable institutions.

Issues of independence, accountability, and transparency prompted to create

twenty-four voluntary guidelines for fund managers worldwide. The closest
code of conduct formed by members of the International Working Group of
SWFs during a summit organized by the International Monetary Fund (IMF) on
September 2008, is the self-imposed and non-legally binding Generally
Accepted Principles and Practices (GAPP) for Sovereign Wealth Funds or the
Santiago Principles. Twenty-four sets of guidelines are included that aim to
advance transparency, sound governance, responsibility, intelligent investment
patterns, and a more open, non-discriminatory, and greater assimilation of SWF
endeavors. The Generally Accepted Principles and Practices (GAPP) states four
principal objectives to serve as a guide for SWFs: (1) Contribute to the
international financial system's stability, as well as the free flow of investment
and capital; (2) Meet all bureaucratic and disclosure conditions in the countries
SWFs lay investments; (3) Guarantee that SWFs investments are based on both
fiscal and economic risk as well as return-related determinations; and (4) create
a transparent and good governance framework that allows sufficient control in
operations, risk mitigation, and answerability. Santiago Principles is stated in
the definition of terms of House Bill No. 6608 but does not mention any specific
directive in its provisions that will give teeth or premium to these principles and
practices. It questions the validity, scope, and Santiago principles' relevance as
a guidance framework to the bill.

24 Generally Accepted Principles and Practices (GAPP) of the Santiago

Principles:

Principle No. 1. The SWF's legal structure should be rational, contribute to

its overall efficiency and the achievement of its set goal(s).
 Sub-principle 1.1. The SWF's legal structure must guarantee that
both the SWF and its transactions are compliant with the law.

Sub-principle 1.2. Salient attributes of the legal foundation and

framework of the SWF, along with the legal connections that it has
with state entities needs to be publicly known.

Principle No. 2. SWF's policy goal must be evident and communicated to

the general public.

Principle No. 3. In cases of major domestic macroeconomic impact through

SWF’s actions, the local financial institutions must be tightly integrated
with those actions by the SWFs. This is to ensure accordance with the
broader macroeconomic policies.

Principle No. 4. It's essential that there be a transparent and publicly

known policies, guidelines, and/or agreement in respect towards the SWF's
overall method of operations for financing, withdrawing, and
its expenditures.

Sub-principle 4.1. SWF’s fund source must be made public.

Sub-principle 4.2. SWF’s withdrawals and spending must be made
public.

Principle No. 5. The owner must receive timely reports of the pertinent
statistical information related to the SWF for inclusion, if necessary, within
macroeconomic sets of data.

Principle No. 6. To enhance integrity and operational freedom in

management, the governance structure of the SWF must provide a
straightforward and efficient separation of duties and responsibilities in
pursuit of its goals.
Principle No. 7. The owner must establish the SWF's goals and select the
associates of its administrative body in line with clearly stated processes,
and exert supervision over its operations.

Principle No. 8. The administrative body must work in the SWF's greatest
advantage, have a specific agenda, and possess sufficient power and
expertise to execute their responsibilities.

Principle No. 9. The SWF's operational control must independently carry

out its strategies and in line with explicitly stated duties.

Principle No. 10. The applicable laws, treaties, constitutive papers, and
management contracts must explicitly outline the SWFs accountability
structure.

Principle No. 11. A yearly report & related financial documents

(statements) on the sovereign wealth fund’s performance and operations are
required in congruence with the accepted national or international
accounting standards.

Principle No. 12. Financial statements and activities of the SWF must be
audited annually in congruence with accepted national or global auditing
criterion.

Principle No. 13. Standards of professionalism and ethics must be

stipulated and communicated to the ruling body, administration, and
personnel of the SWF.

Principle No. 14. Dealings involving 3rd parties aiming at managing the
operations of the SWF must be anchored on financial and
economic considerations, and adhere to specific guidelines and process.
Principle No. 15. SWF undertakings and processes must always be
executed in accordance with local laws of the host countries; adhering to
all pertinent bureaucratic and transparency obligations of the countries
where the SWF conduct operations.

Principle No. 16. The method in which the sovereign wealth fund is
functionally autonomous against its owner and its administrative structure
and goals must all be made public.

Principle No. 17. To exemplify the SWF's fiscal and economic outlook,
pertinent financial data must be made available to the public. This will help
to stabilize the global financial marketplace and foster confidence in
beneficiary nations.

Principle No. 18. The SWF’s investment policies laid down by the
administrative body or the owner must explicitly correspond with its stated
goals, risk tolerance, and investment plan anchored on the rational concepts
of portfolio management.

Sub-principle 18.1. The SWF's financial risk vulnerability and

potential utilization of leverage must be guided by its investment
policies

Sub-principle 18.2. The utilization of external and/or internal

portfolio supervisors, the scope of their responsibilities and powers,
as well as their selection and performance evaluation procedures
must all be stipulated in the investment policy.

Sub-principle 18.3. The SWF must make its investment policy

available to the public.

Principle No. 19. Investment choices of the SWF must seek to

optimize risk-adjusted financial returns anchored on economic and financial
factors, in congruence with its investment policy.
 Sub-principle 19.1. If investment activities apart from financial and
economic factors are concerned, it must be explicitly articulated in
the investment policy and be disclosed to the general public.

Sub-principle 19.2. Prudent asset management principles must be

implemented when managing assets belonging to the SWF.

Principle No. 20. The SWF must not search or use improper privileged
information and discharge undue influence over private businesses by the
general government.

Principle No. 21. Shareholder ownership rights is a critical component in

the value of the SWF’s equity investments. If it decides to utilize legal
proprietorship rights, it must adhere to the investment policy. This
safeguards the value of financial investments. The SWF must divulge to the
public its overall strategy regarding voting securities of recognized entities,
as well as crucial indicators that guide its practice of proprietorship rights.

Principle No. 22. SWF needs system for identifying, evaluating, and
regulating the risks associated with its activities.

Sub-principle 22.1. The risk control structure must consist of

trustworthy data and regular reporting systems in place. It will
enable proper regulation and handling of pertinent risks within
reasonable ranges and threshold, oversight and incentive measures,
codes of conduct, business continuity strategy, and independent
auditing process.

Sub-principle 22.2. The overall structure for risk management of the

SWF must be made available to the public.

Principle No. 23. SWF's assets & investment achievement must be assessed
and submitted to the owner in accordance with explicitly established
standards or principles.
 Principle No. 24. In or on behalf of the SWF, a process of routine
evaluation of GAPP compliance must be participated.

III. RESULTS OF THE STUDY

This chapter summarizes the findings of the accumulated data from different
analyses in two sections with respective subheadings. The discussion of results is
based on the research questions stated in the first chapter.

SOCIOECONOMIC CHALLENGES REVOLVING HOUSE BILL 6608 OR

THE MAHARLIKA INVESTMENT FUND

For Krieger et al. (1997), as cited by Chauvel and Leist (2015), the complex
interaction of social and economic elements that influences people's lives,
opportunities, and results refers to as socioeconomic. It is a broad notion that
includes a variety of characteristics such as income, education, employment,
social status, and accessibility to resources and services. These interconnected
elements can substantially influence life quality, human health, and happiness.

Sovereign wealth funds may provide a wide range of benefits to countries.

However, they also bring up an array of socioeconomic challenges. One critical
challenge is the likelihood of non-transparent management and corruption
(Sollod, 2011). SWFs could be a magnet for corruption because of their vast
resources and usually obscure design, with cash being diverted for personal
benefit instead of being utilized for national development. Next is the possibility
of a possible conflict of interest. As a state-owned fund, SWFs can be utilized
to achieve political aims or to benefit specific companies or industries. It might
cause market distortion and produce inequality for market players.

Additionally, SWFs could be a contributor to the phenomenon coined by

Richard Auty (1997) known as the resource curse, whereby a country's economy
becomes excessively dependent on revenues derived from natural resources
which negatively affects a country's social, political, and economic status (Ross,
2004). It can lead to economic volatility, hyperinflation, and undiversified
economic investments (Pouokam, 2021). SWFs have the potential to worsen
social inequality within a country. While SWFs might offer a steady stream of
revenue for the government, the advantages may not reach the general public,
particularly those in poverty or disadvantaged groups. Moreover, investments
made by SWFs may emphasize profitability over environmental or social
interests, resulting in negative consequences in effect to such interests
(Ahmadov et al., 2011).

Fund sourcing

In the case of House Bill 6608, socioeconomic challenges are identified

specifically relating to funding sourcing. Prior to this bill's quick approval in the
House of Representatives, a similar bill (House Bill No. 6398) which also seeks
to create the MIF, has included two government financial institutions in the
name of Government Service Insurance System and Social Security System
among its fund sources. GSIS is asked to contribute a whopping ₱125 billion,
while ₱50 billion for SSS. Pension members of these two GFIs reacted
negatively, as this might adversely impact their pension funds. Meanwhile,
GSIS and SSS refuted their claim and ensured members that it would not affect
the pension fund in any way.

Interestingly, perhaps due to public clamor, proponents of lower house-

approved House Bill No. 6608 removed both GSIS and SSS as fund source
contributors for the MIF. When asked about the turn of events in utilizing GSIS
and SSS funds in the MIF due to issues, Senate Minority Leader Aquilino
"Koko" Pimentel III attributed the investible funds of the GSIS and SSS also
coming from the monthly contributions of their members. They all form part of
the assets of SSS and GSIS's pension fund & then those assets are used
(investible funds or member contributions) in computing the actuarial life of
their pension fund (Pimentel, 2022). He also mentioned that the Philippines is
already short in the ideal years of actuarial life of SSS and GSIS's pension funds
based on international standards. However, lawmakers are aggressively creating
another fund to funnel away pension funds from beneficiaries further.
Furthermore, he asserted that it is better than the government will focus on food
sustainability and poverty alleviation programs and reduce the 8% inflation rate
rather than creating the MIF. Even if this sovereign wealth fund succeeds, it will
take years for ordinary citizens to reap the benefits from its investments (A.
Pimentel III, CNN Philippines news interview, December 7, 2022).

When asked about his opinion on the amendments made to the bill, former
Philippine Supreme Court Associate Justice Antonio Carpio emphasized that all
the fund sources coming from GFIs are not surplus funds. "No surplus funds are
coming from the national government because we have been in deficit for the
longest time. Every year, we spend more than all the revenues that the
government could earn for that year. So, we are always in deficit and borrow to
fill the gap. We have been in deficit spending. In the last three years, our Debt
to GDP ratio has skyrocketed from 39.6% to 64%. We are already in the danger
zone regarding the capacity to repay our debt. We are wallowing in debt, not in
wealth. There is no such thing as surplus funds" (A. Carpio, ANC news
interview, December 12, 2022). He also mentioned on a media forum that the
MIF will arrive at an annual loss, as its perceived annual income only range from
7-8%, while its total annual construction and operational expenses are at 8.9%.
Additionally, for the fiscal year 2023, the Philippines' debt burden is estimated
to be around Php1.6 trillion or 29.8% cut from the national budget. It is sensible
to prioritize reducing the country's 64% debt-to-GDP ratio to around 40% before
establishing the MIF (Almario, 2022).

"What they are doing now is that they will put a seed capital from non-surplus
funds or borrowed funds in effect because we are getting money from the
general appropriations act, and we are creating further deficit because we are
transferring appropriations to the MIF, so we have to borrow more so
effectively, borrowings finance this MIF. Also, under the proposed bill, the MIF
can borrow from GFIs to sustain the sovereign debt fund. By putting up a
Sovereign wealth fund, we are a poor country pretending to be rich" (A. Carpio,
ANC news interview, December 12, 2022). Lawmakers from the House of
Representatives reduced the MIF's initial capitalization of Php275 billion to
about Php110 billion.

Figure 1 and 2 shows GSIS's total equity and comprehensive income for the
year 2022, respectively, based on their unaudited statement of financial position:

Figure 1: GSIS Equity (2022)

Source: Government Service Insurance System (GSIS)

Figure 2: GSIS Comprehensive Income (2022)

Source: Government Service Insurance System (GSIS)

Figure 3: SSS Total Reserves/Equity (2022)

Source: Social Security System (SSS)

Figure 4: SSS Comprehensive Income (2022)

Source: Social Security System (SSS)

GSIS has an equity deficit of almost Php697 billion and a comprehensive

income loss of around Php126 billion for 2022. Meanwhile, SSS has an equity
deficit of around Php6.9 trillion and a comprehensive income loss of around
Php8.4 billion. Undoubtedly, both GSIS and SSS are financially drowning, and
identifying them as fund sources for the MIF can be disastrous for the agencies
and their members.

Should the Philippine government create a sovereign wealth fund, it must

ensure that it is established on well-thought grounds of the budget surplus or
excess wealth so that Filipinos do not shoulder its equity costs. Both policy and
politics should be highly considered, but more importantly, managers of the MIF
should be insulated from political influence to protect them from would-be
plunderers. According to the World Bank, fund sources from most SWFs
worldwide come from their respective government's excess funds, such as from
the extraction of natural resources. Although, a country does not need to have
surplus funds before it can establish an SWF, as long as public debt levels are in
decline or at a low level, like in Botswana and Russia. However, in some
countries, their SWFs are established ill-timed that the interest rate on public
debt is higher than the revenues from foreign financial investments of the SWF.
It places them in a tight spot between paying off debt while investing abroad
through their SWF. In the case of the Philippines, it has neither a budget surplus,
excess funds, nor a low-level public debt, and so, according to experts, a
prematurely created, presidential-controlled, and borrowing-based sovereign
wealth fund like Malaysia's 1MDB can be disastrous. In addition, unintended
and long-term consequences may arise, such as economic instability, lack of
transparency, and dependence on natural resources.

Economic uncertainty

Another potential socioeconomic challenge intrinsic to House Bill No. 6608

is its economic uncertainty. Economist professor Emmanuel Leyco affirms that
the Philippines do not have excess funds and cannot risk people's money. He
exemplified what it would take for the Philippines to be as prosperous as other
countries' sovereign wealth funds. "The GPFG of Norway was established from
oil revenues, and they dedicated these revenues to create a sovereign wealth fund
for the benefit of its citizens. If we go back a bit, we would have a similar
opportunity if we had established a sovereign wealth fund based on the
Malampaya revenues. That would have been nice, but unfortunately, that
opportunity no longer exists. We missed the opportunity when we had the
chance to make it a sovereign wealth fund in which its fund sources invested in
risky investments are not coming from the citizens but rather from oil revenues.
The investments should come from excess funds over institutions" (E. Leyco,
CNN Philippines interview, December 7, 2022).

Economist and U.P. professor emeritus Winnie Monsod pointed out that she
does not favor the bill because its foundations are set on the wrong foot. It does
not follow the concept of a sovereign wealth fund that extracts its fund sources
from excess or surplus funds from commodity exports such as oil and gas. Also,
mineral exports and inflows from foreign exchanges that are excess or fiscal
surpluses can be included. She said, "Unfortunately, we do not follow any of
those criteria because we are in fiscal deficit. We do not have any fiscal reserves
and only get meager amounts from mining, among others. It conflicts with
government projects or goals, and why do we think this wealth fund is a priority
anyway? It should not be called a sovereign wealth fund but a sovereign debt
fund" (W. Monsod, ANC News interview, December 9, 2022).

Sovereign wealth fund strives to transform natural resources such as minerals

and oil into financial wealth, which are then maintained in a trust structure for
intergenerational benefit while sustaining local currencies that ensure financial
security and economic preparedness (Lee and Wang, 2011). As per the SWF
Institute, sovereign wealth funds are funded primarily by (1) commodity
exports of oil and gas, either taxed or government-owned, and (2) non-
commodity sources from government budget or fiscal surpluses, foreign
currency reserves, governmental transfer premiums, and privatization earnings
(Ho and Zhang, 2014). Indeed, based on the bill, the MIF's fund sources are not
from excess or surplus funds from government financial institutions but rather
from existing funds already earmarked for specific purposes before the bill's
formulation. In that sense, the government usurps billions of pesos from those
GFIs and places them in an ill-conceived sovereign wealth fund, potentially
harming existing or future government projects and programs that benefit
millions of Filipinos.
 In the case of the Philippines, the Malampaya Fund, infamous for its infested
corruption, could have been a potential fund source for the Maharlika Investment
Fund because of its revenues from physical wealth. Concerning the corruption
issues surrounding the Malampaya Fund, irregular issuances of 184 Special
Allotment Release Orders totaling Php36.288 billion from January 2004 to May
2012 were discovered, through a probe into the Department of Budget and
Management, initiated by the Commission on Audit (COA, 2017). Due to the
blatant disrespect for existing laws, rules, and regulations that influenced the
fraudulent use of funds, COA's audit team recommended launching an
investigation immediately to identify government officials and employees that
might be liable for the highly dubious fund releases and file proper legal actions
if justified. A Senate public investigation revealed the risks and weaknesses of
present governance systems, emphasizing the necessity of policy interventions.
Senate Deputy Minority Leader Risa Hontiveros espoused her concern regarding
the bill, for she believes this is a counterproductive measure toward the country's
economic goals (R. Hontiveros, Senate press release, December 6, 2022). Indeed,
this should not be a priority measure given the current economic situation where
the country faces a 7% trade deficit, among the highest globally; the national
budget is also deficit-funded. Healthcare, agriculture, and education sectors
should be given more focus instead of a highly dubious SWF.

Loopholes in the “Safeguards” of the bill

According to the articles of House Bill 6608, the Maharlika Investment Fund
or the Maharlika Investment Corporation are exempted from:

a. Republic Act No. 7656 / Revised Dividend Law

b. Republic Act No. 6758 / Salary Standardization Law

c. Republic Act No. 9184 / Government Procurement Reform Act

d. Republic Act No. 10667 / Philippine Competition Act

e. Republic Act No. 10149 / GOCC Governance Act of 2011

 f. Republic Act No. 2260 / Civil Service Act of 1959

When asked whether the 'safeguards’ set in the bill will be adequate, knowing
that there are exemptions, economist and professor Emmanuel Leyco fear that
these exemptions make him uncomfortable with the bill. "With the premium of
exemptions given, I am afraid that audits will find no violation in its operations.
In its early stage, they are already setting it up so that they will not be violating
any law, although they will deviate from the usual practice governing the
management of huge funds of the people. When we were talking about where
the seed capital of the MIF would be outsourced, I was reminded of the Fort
Bonifacio sale that had billions of revenues. That should be one of the seed
money utilized in the MIF. They say the revenues of that sale were utilized in
the Military Modernization Program, but they cannot say that the program's
funds came from the sale of Fort Bonifacio. Revenues from sales and operations
should be the fund source of the MIF and not from taxes or existing funds from
the citizens in GFIs" (E. Leyco, CNN Philippines interview, December 7, 2022).

Investing using borrowed capital entails many risks as investments can easily
be at a loss, and exemptions from existing laws violate the basic principles of a
SWF. It should follow all laws of the country where it operates. It cannot be
exempted from civil service laws because, under the constitution, the civil
service’s purview captures the executive, legislative, and judiciary branches;
subdivisions; government instrumentalities such as GOCCs, and appointments
in that respect. It draws a negative image that the MIF violates or seeks
exemptions from existing laws, rules, and regulations of the Philippines.

Negative motives of the bill

When asked about the motives of the Maharlika Investment Fund, economist
and U.P. professor emeritus Winnie Monsod described it as a milking cow. She
espoused several reasons why she perceives it as such, including its quick
approval in the lower house, law exemptions, economic benefits, and political
 maneuvers. She questioned how the government railroaded the bill into passing
congress 11 days after its initial presentation on November 28, 2022. She also
described how the government is criticized for mismanaging people's money.
"Look at the Coco Levy fund that was supposedly for the benefit of the coconut
farmers. It was distorted by the entrance of the crony who bought the United
coconut bank, and when it got into trouble, LBP had to merge with it to get it
out of trouble. It did not help the coconut farmers at all. Instead, it helped the
Cojuangcos and San Miguel Corporation. The coconut farmers end up nowhere.
Look at the roads fund brought out by Former Senator Miriam Santiago. It was
mainly for road initiatives, among others, but nothing happened. There are many
funds like that, such as the national development company. The government has
never been a good manager. What makes you think that this MIC will be any
different?" (W. Monsod, ANC News interview, December 9, 2022).
.
When asked to balance the conversation and give President Marcos the
benefit of the doubt, she explained, "You know the saying that the road to hell
is paved with good intentions. I do not know how a sovereign wealth fund born
out of deficit rather than of surplus will be helpful because if it is born out of
deficit, it means that it is competing and crowding out other good projects of the
government. Let us not talk about the economics of the fund because the
economics show that this fund is definitely no good. Let us talk about the politics
of this fund; that is where we can get sensible answers. For example, why didn't
Rep. Joey Salceda and Rep. Stella Quimbo author this bill? Obviously, this bill
is not well thought of. They are going to be paid on international standards. They
are exempted from these laws because they will be paid fantastically. Don't you
think this is a milking cow?" (W. Monsod, ANC News interview, December 9,
2022).

According to the World Bank, some sovereign wealth funds operate as

conduits for cronyism and corruption, squandering scarce wealth and benefiting
politically-connected elite organizations at the detriment of other individuals or
 the broader population. It occurs when SWFs have bad inter-governmental
branch checks and balances. On that note, the MIF can become extra-budgetary
slush funds, a form of the extra-budgetary and slush funds combined. The term
extra-budgetary funds come from (1) revenue streams, (2) natural resources, and
(3) donor aid related to government transactions and public funds that are
unincluded in the annual budget and unbound to the same basic level of
reporting or audit as other funds are (International Budget Partnership, 2011).
Although extra-budgetary funds can have lawful purposes, the term slush funds
have no designated purpose and have a negative connotation in the corporate
and political arena representing wealth generated anonymously, presumably
from illicit channels (Liberto, 2021). When combined, extra-budgetary slush
funds are frequently utilized for non-transparent or accountable reasons
controlled by the executive branch. These funds are discretionary and kept off
government accounts' official books, making it difficult to track and monitor
(Liberto, 2021). It is essentially deployed for unethical or illicit activities
forbidden or unsanctioned by the legislature or other supervisory agencies, such
as financing political campaigns, recompensing government officials, and
funding illegal operations. It causes economic imbalance and inequality and
erodes the government's legitimacy by undermining sound fiscal policies, fiscal
discipline, and transparency.

CRITICAL ASPECTS OF NORWAY'S GOVERNMENT PENSION FUND

GLOBAL TO RESEMBLE POLICY OPTIONS OF PHILIPPINES'
MAHARLIKA INVESTMENT FUND

Responsible Investing

The Government Pension Fund Global have fixed-income market and global
equity investments. The fund's investment policy focuses on noteworthy
responsible investing methods that can be applied to the Maharlika Investment
Fund. One of GPFG's responsible investing methods is its exclusion policy
(Christofferson, 2019). It necessitates excluding companies that participate in
destructive activities to the environment or society. Companies that manufacture
nuclear weapons, cluster bombs, or tobacco, for example, were barred from the
GPFG’s investment portfolio. It is also divested from companies proven to be
involved in corruption, human rights infringements, and severe environmental
harm (NBIM, 2021). The fund's exclusion policy is one method that guarantees
its investments are consistent with the core principles of responsible investing.

Another responsible investing method is GPFG's active ownership strategy.

It involves collaborating with companies in its investment portfolio to influence
their conduct and support sustainable practices. It involves voting on
shareholder resolutions, adopting proxy voting recommendations that
correspond with corporate principles, and engaging with companies on
environmental, social, and governance (ESG) problems like labor rights,
diversity, and climate change (Ministry of Finance, 2019). By interacting with
companies, the fund guarantees they are accountable for their activities. A long-
term investment strategy is also present. GPFG plans on investing in companies
that have the potential to produce long-term sustainable returns because the fund
acknowledges that short-termism may be harmful to the economy and society
(Ahamed, 2018). It avoids investments that have a high chance of producing
short-term gains at the price of long-term sustainability. The long-term
investment strategy of the fund enables it to discover investment opportunities
compatible with its principles and contribute to a more sustainable future (World
Bank, 2019).

Fourth is GPFG's integration of ESG factors into its investment decision-

making process. The fund examines firms based on environmental, social, and
governance performance and only invests in those that match its criteria. ESG
elements guarantee that the fund's investments are consistent with its ideals.
(Fjeldbraaten, 2020). Finally, GPFG's reporting system is an excellent
responsible investing method. The fund provides reports on its investments and
its interaction with companies on ESG problems regularly. The reports are freely
accessible to the public, allowing stakeholders to hold it responsible for its
actions, and guarantees transparency regarding its investments. As more
investors recognize the importance of responsible investing, GPFG's approach
provides a practical example, if enacted into law, for the Maharlika Investment
Fund to follow.

Governance Framework

The GPFG's governance framework is intended to provide accountability,

efficient asset management, and transparency. The framework is grounded on
fundamental concepts, such as a clear mandate, a robust governance structure,
a focus on long-term success, and a commitment to ethical investment (NBIM,
2021). The Norwegian government defines the GPFG's mandate in a set of
guidelines known as Ethical Guidelines for the GPFG which establish a
blueprint for the fund's investment portfolio and specify the number of ethical
considerations that must be considered when deciding what and where to invest
in (NBIM, 2021). Anti-corruption measures, human rights, environmental
sustainability, and the Santiago Principles are among the factors to examine
(NBIM, 2021).

The Norwegian government owns the GPFG. Its ownership structure

guarantees that the fund is accountable to the Norwegian government and its
people and that investment decisions are made to the most significant advantage
of the fund's beneficiaries. While the Ministry of Finance is in charge of
establishing the fund's investment guidelines and strategic objectives, the Norges
Bank Investment Management, a subsidiary of the Central Bank of Norway, is
in charge of the fund's daily investment management (Norway Ministry of
Finance, 2021). The Norwegian government appoints a 7-member board of
directors that provides strategic leadership and supervision to NBIM, including
the Governor of the Central Bank of Norway and the CEO of NBIM. Several
committees, including the Risk, Investment, and Audit Committee, assist the
board by supervising certain sections of the fund's activities (NBIM, 2021). The
Ministry of Finance appoints an independent body called the Council on Ethics
which provide recommendations and advice on ethical issues related to the
fund's investments (NBIM, 2021).

The GPFG's long-term performance priority is mirrored in its investment

strategy, which is geared to deliver excellent long-term returns while limiting
risk. The fund invests in various asset classes that comprise fixed-income
securities, real estate, and equities, as well as investments in emerging markets
and alternative investments (NBIM, 2021). The fund also has a long investment
horizon, focusing on investments that provide consistent returns over several
decades. In addition, the fund has risk restrictions and safeguards to manage its
vulnerability to different risks, such as market risk, credit risk, and liquidity risk.
(NBIM, 2021). By conforming to these principles, the GPFG produced high
returns for Norway's succeeding generations while supporting sustainable and
responsible investing methods.

Performance results of investment strategies

The GPFG is a sovereign wealth fund formed in 1996 to manage Norway's

oil and gas industry's surplus revenues. The fund's primary goal is to create long-
term profits to cover the Norwegian government's future pension commitments.
Since its formation, the GPFG has produced outstanding returns, becoming one
of the most significant SWF worldwide, with over $1.5 trillion in assets under
management as of 2021 (NBIM, 2021). GPFG's investing philosophy is built on
diversification across asset classes, industries, and geographical regions, to
reduce risk and optimize returns (Ministry of Finance, 2019). As of December
2020, the GPFG's asset allocation was as follows: 69.3% in equities, 27.5% in
fixed income, 2.2% in real estate, and 1.0% in unlisted infrastructure (NBIM,
2020). According to NBIM's annual report, the GPFG has had an average annual
gain of 6.1% in Norwegian Krone (NOK) and 5.7% in US dollars since its
inception. In 2021, the fund's return on investment was 12.1%, its highest return
since 2009 (NBIM, 2021).
Equity Investments. From its establishment, equity investments have served as
the principal enabler of the GPFG's performance results, accounting for
approximately 70% of the fund's investment portfolio. The GPFG has invested
in approximately 9,000 companies worldwide, as of December 2020, with the
highest assets in the United States, United Kingdom, China, and Japan (NBIM,
2020). Holdings in healthcare, consumer goods, technology, and finance
describe the diversified portfolio investments of the GPFG globally, focusing on
large-cap companies with solid fundamentals and attractive valuations. NBIM
manages the fund's equity investments in-house, employing a quantitative
approach to assess possible investments and discover companies that fulfill its
investment requirements (NBIM, 2020). The GPFG's exposure to stock markets
has helped it achieve significant profits over the last 20 years, especially during
bull markets (Copley, 2015). The fund has fluctuated throughout time, mirroring
the instability of the international financial markets. For example, during the
global financial crisis, the fund returned -23.3% in 2008 but swiftly rebounded
in the following years, returning 26.4% and 25.6% in 2009 and 2010,
respectively (NBIM, 2021). During the last ten years, the fund's average annual
gain has been 8.8%, exceeding its target by 0.2 percentage points. As of
December 2021, the fund's equity investments had a return of 7.9% in NOK and
7.5% in USD (Ministry of Finance, 2021).

Fixed-income investments. The fixed-income portfolio of the GPFG is mostly

comprised of government and corporate bonds issued in industrialized nations,
accounting for approximately 30% of the fund’s investment portfolio.. Fixed-
income investments in the fund offer portfolio stability and revenue to pay the
fund's pension commitments (Engen, 2016). According to NBIM, the fund's
fixed-income investments delivered a 6.7% return in 2020, compared to the
target 6.1% return. The fund's average annual return on fixed-income
investments has been 2.5% during the last five years (NBIM, 2021).

Real estate investments. The GPFG's real estate interests are primarily
commercial properties in Europe and the United States, accounting for less than
 10% of the fund's assets under management. A specialized staff inside NBIM
manages the fund's real estate portfolio, and investments are made through joint
ventures with skilled real estate companies. According to NBIM, the fund's real
estate assets achieved a -0.1% return in 2020, compared to a target return of -
2.0%. Over the past five years, the fund's average annual return on real estate
investments has been 5.8% (NBIM, 2020).

Unlisted infrastructure investments. Long-term investments in companies

providing essential services like transportation, electricity, and communication
comprise the GPFG's unlisted infrastructure investments, accounting for 5% of
the investment portfolio. Its Infrastructure investments diversify its portfolio and
expose it to industries projected to benefit from long-term demographic and
economic trends. According to NBIM, the fund's unlisted infrastructure
investments delivered an 8.2% return in 2020, compared to a target return of
6.7%. Over the last five years, the GPFG's average annual gain on unlisted
infrastructure investments has been 10.7% (NBIM, 2020).

The GPFG has been an unparalleled and resounding success in sovereign

wealth fund management, producing good long-term returns that have
outperformed its benchmark. The fund's investing philosophy, centered on long-
term thinking, diversification, and active management, has shown to be efficient
in managing risks and profit generation. The fund's dedication to responsible
investing has raised the bar for ESG policies in the investment industry. The
success of the GPFG over the last two decades highlights the benefits of a well-
managed sovereign wealth fund in meeting future pension commitments and
adding to a country's long-term development.

IV. CONCLUSION

The policy objective/s of any SWF is the most significant component in the
fund's design since it shapes its asset management strategy, investment policy,
investment outlook, corporate governance framework, and fundamental
withdrawal strategy (Geronimo, 2018). The proposed SWF under House Bill
No. 6608 or the Maharlika Investment Act intends to offer funds to meet
Filipinos' present development needs, specifically for job generation,
partnership formation, infrastructure expansion, food and energy security,
investments and trade promotion, and welfare improvement of Filipinos. It is
capable of helping the Philippine government in avoiding local asset bubbles,
diversify its investment portfolio across asset classes and markets, minimize
inflation, uphold export competitiveness, stabilize the currency, and boost
national savings (Geronimo, 2018). The MIF can also be utilized as a
stabilization fund during volatile times following natural and artificial disasters,
economic difficulties, and national security threats (Sanchez et al., 2021).

The study findings reveal that the socioeconomic challenges revolving

around House Bill 6608 or the Maharlika Investment Fund Act have four (4)
main components: fund sourcing, economic uncertainty, loopholes in the
safeguards of the bill, and negative motives of the bill. Experts are skeptical
about the fund sourcing of the MIF as fund contributions are not coming from
excess funds or surplus revenues, but rather from debt-driven sources from
government financial institutions. According to their 2022 financial statements,
GFIs such as GSIS and SSS have no surplus revenues but have billions of equity
deficit and comprehensive income loss. Thus, the proponents of House Bill
6608 removed GSIS and SSS as fund sources for the MIF, which lawmakers
included in previous bills related to the MIF's creation due to issues of harming
contributors' pension funds and the unfavorable financial status of both GFIs.
The debt-to-GDP ratio of the country has skyrocketed from 39.6% to 64% in
the past three years, facing a 7% trade deficit and, therefore, the country is in
deficit spending. Pertinent to these reasons, economic uncertainties surfaced.
Loopholes in the supposed safeguards of the bill also surfaced due to the
premium of exemptions given to the MIF or MIC from Philippine laws, drawing
a negative image for the bill. Negative motives for the bill surfaced as experts
believe this could be another milking cow for Filipino politicians, similar to the
Php36.288 billion siphoned from the Malampaya Fund.

With the current Marcos administration ratifying this bill as urgent, it puts
the real motive of the bill under a cloud of doubt and mistrust given the history
of cronyism, corruption, and authoritarian regime by Marcos Jr's father, former
president Ferdinand E. Marcos Sr. A Philippine sovereign wealth fund born out
of deficit rather than surplus is not a good indication of success, but rather an
indication of potential failure. The MIF's operational management must be
independent of political interference, given that it operates in the optimal
interests of the SWF. The role of the SWF owner must be limited in terms of
formulating broad policies and appointing governing bodies, but not in terms of
shaping operational management. It grounds on the two-face power theory of
Bachrach and Baratz (1962), acknowledging the ideological function of hidden
power created through the mobilization of bias. Therefore, the research
direction point towards the people who decide the policies beyond the eyes of
the public in such a way that the study findings captured relevant information
pertinent to the socioeconomic challenges surrounding House Bill 6608,
resulting in the development of applicable themes. Furthermore, the study
recognizes that the bill's proponents, including other lawmakers and
government officials, will mobilize this bill in their own personal interest. The
bill's provisions must clearly mandate safeguarding it from these self-interested
actors. However, these are yet to unfold as a bill remains only on paper unless
enacted into law and enforced, thereby limiting the theory's scope.

The success story of the Government Pension Fund Global has never been
known for its absolute perfection but for its prudent investment strategy,
professional management, transparency, and robust governance framework.
Over the years of operations, it has experienced a fair share of pitfalls, but
because of the solid foundational groundwork laid out for the GPFG, it has
managed to remain afloat against collapse, thus, rendering it to become the
 world's largest SWF. The prospect of a Philippine SWF has captured the interest
of several legislators, policymakers, and external observers in recent years. The
genesis of it all dates back to 2013 when the Bangko Sentral ng Pilipinas echoed
the concept of developing an SWF to boost the management of the country's
foreign currency reserves. (Remo, 2013). While a well-designed and well-
governed sovereign wealth fund significantly strengthens economic
sovereignty that leans towards the intergenerational benefit, an ill-conceived
SWF could propagate homegrown adverse effects for current and future
generations. After all, why create a sovereign wealth fund whose negative
impacts outweigh the benefits?

V. RECOMMENDATION

An investment made by sovereign wealth funds could benefit domestic

socioeconomic programs and industrial advancement, among others. Sovereign
wealth funds ideally ought to function as an independent entity led by expert
investment managers that are democratically responsible and mainly insulated
from political interests. However, the MIF must have a well-established
framework in place when making investments to prevent generating investment
choices driven by political motives. When investing abroad, transparency issues
may arise, potentially leading to mistrust and political conflict with the recipient
nation, which the Santiago Principles aim to resolve. House Bill No. 6608
(Section 3) only articulated the Santiago Principles Framework in general
terms, specifically in its definition of terms, but did not mention any compliance
mandate. It will need to be more specific to justify the role of these international
financial reporting standards in assisting regulatory authorities. According to
Sections 37 and 38, the bill requires external and internal auditors but, while
their tasks are not detailed enough, both external and internal auditors can
convince the advisory board to follow precise reporting standards. The
government may learn from the finest compliance audit methods in the GOCC
 industry, which employs corporate governance scorecards assessed by
independent consultants.

The legal framework of the MIF must explicitly stipulate the requirement to
provide vital statistical information to authoritative macroeconomic figures in
a precise and timely approach. As the MIF rises in prominence in the global
financial market, it is critical to guarantee that the financial community
perceives it as a standard and responsible SWF. To that purpose, policymakers
should study current international data reporting procedures and materialize the
MIF's mandate and commitment to engage in those processes. Thus, before
enacting House Bill 6608 into law, it is germane that the Philippine Congress
acquire sufficient and applicable academic information or research studies by
experts that justify and uphold the bill's muti-facet fundamental concepts for
the collective benefit of Filipinos. By doing this, it will help eradicate or
minimize the socioeconomic challenges surrounding the MIF. Furthermore, the
lessons of the GPFG's responsible investing methods, governance framework,
and investment strategies' performance results can be operationalized for policy
options for the Maharlika Investment Fund.

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