The Bureau of the Treasury has released the implementing rules and regulations (IRR) that will govern the Maharlika Investment Fund (MIF), paving the way for the official establishment of the country's first sovereign wealth fund.
Now that the IRR has been officially published, it is worth exploring some of the key aspects highlighted in the rules and regulations.
What is the role of the Maharlika Investment Corp. (MIC)?
The role of the MIC is to be the exclusive entity responsible for mobilizing and utilizing the MIF for investments. Their main objective is to generate the best possible returns on investments for the fund.
How much money does the MIC have?
The MIC has a total authorized capital of P500 billion. Out of this amount, P375 billion will be provided by the government, and the remaining P125 billion will be raised through investments from the government, private financial institutions, or corporations.
However, the initial capitalization of the MIC is P125 billion, with the government contributing P50 billion, while the Land Bank of the Philippines and the Development Bank of the Philippines (DBP) will contribute P50 billion and P25 billion, respectively.
Where will the national government get the P50 billion for its contribution to the initial capitalization?
The national government will source the P50 billion from various places, including:
- One hundred percent of the dividends earned by the Bangko Sentral ng Pilipinas (BSP) that are given to the national government during the first and second fiscal years after the MIF Act of 2023 comes into effect.
- Ten percent of the national government's share of the income generated by the Philippine Amusement and Gaming Corp. (Pagcor), as well as 10 percent of the revenues from the operations of other state-run gaming operators/regulators.
- Proceeds generated from the sale of state assets through privatization.
- Other sources, such as royalties and special assessments.
How can the MIC get more capital?
If the MIC needs more capital, its Board of Directors can ask Congress to pass a law allowing them to increase their capitalization. This means they can request for more funds to be allocated to the MIC's operations and investments.
Can the MIC borrow funds by issuing bonds?
Yes, the MIC has the authority to issue various types of bonds, debentures, and securities to borrow money. However, these bonds cannot be guaranteed by the Philippine government.
Which investments are permitted for the MIC?
The MIC has a range of investment options available:
- Cash, foreign currencies, and commodities.
- Fixed income instruments issued by governments and international organizations.
- Domestic and foreign corporate bonds.
- Listed or unlisted equities, including common and preferred stocks.
- Islamic investments, such as Sukuk bonds.
- Joint ventures, mergers, and acquisitions.
- Mutual funds and exchange-traded funds (ETFs) invested in various assets.
- Real estate and infrastructure projects aligned with national priorities.
- Sustainable development initiatives in areas like healthcare, education, and research.
Who makes up the Board of Directors of the MIC
The Board of Directors is composed of nine members, including the Secretary of Finance (Chairperson), the President and Chief Executive Officer (CEO) of the MIC (Vice-Chairperson), the Presidents and CEOs of the Land Bank of the Philippines and Development Bank of the Philippines (DBP), two Regular Directors, and three Independent Directors from the private sector.
If a merger occurs between the Land Bank and DBP, how will the composition of the Board be affected?
If one of the two founding government financial institutions (GFIs) is involved in the merger, the seat on the Board of Directors will be filled by one of the top-ranking officers authorized by the Board of the GFI that takes over the rights and responsibilities of the affected institution.
What is the process for selecting Regular and Independent Directors?
The Advisory Body is responsible for seeking nominations and/or applications for vacancies in the positions of PCEO, Regular Directors, and Independent Directors from both the public and private sectors.
Once the Advisory Body has identified qualified nominees and applicants, it must submit its list of nominees to the Office of the President within 30 days of the vacancy.
Who has the authority to appoint the members of the MIC's Board of Directors?
The President of the Philippines, based on the recommendation of the Advisory Body, is responsible for appointing the PCEO, Regular Directors, and Independent Directors.
What are the responsibilities of the PCEO in the MIC?
The PCEO plays a vital role in the fund. The official provides strategic leadership, manages operations, and aims to maximize investment returns for the nation's economic prosperity.
The PCEO designs and executes strategic initiatives, implements approved policies, analyzes economic trends, identifies business opportunities, oversees financial performance and risk, and ensures regulatory compliance.
Its authority also extends to exercising additional powers delegated by the Board of Directors.
What qualifications are necessary for someone to become the PCEO of the MIC?
The qualifications include:
- Advanced degree in Finance, Economics, Business Administration, or a related field.
- Extensive experience in corporate management, financial planning, strategic planning, market and business development.
- Minimum of 10 years experience in finance or investment, with a senior leadership role in a reputable financial institution or organization.
- In-depth understanding of risk management, compliance, and regulatory requirements.
- Strategic expertise in cash flow and capital planning management.
What is the length of the PCEO's tenure at the MIC?
The PCEO of the MIC has an initial term of three years, with the opportunity for reappointment.
What qualifications are required for the Regular and Independent Directors of the MIC?
Regular Directors and Independent Directors must be Filipino citizens, at least 35 years old, and possess expertise in corporate governance, financial asset investment, or investment management in global and local markets.
Additional qualifications include:
- A master's degree in finance, economics, business administration, or a related field.
- At least 10 years of experience in finance, investments, economics, business, or a related field, preferably in senior management or board positions.
- A proven track record in strategic decision-making, investment performance, understanding financial markets and macroeconomic trends, risk identification and mitigation, and adherence to ethical standards and regulations.
What is the length of the term for the Regular and Independent Directors of the MIC?
Regular Directors are appointed for a period of three years, whereas Independent Directors are appointed for a term of one year. However, Independent Directors may be reappointed, provided that their total tenure does not exceed nine years.
On what basis can the Directors of the MIC be disqualified?
A person may be disqualified if, within the past five years, they have been convicted of a serious offense, found administratively liable for fraudulent acts, convicted or found liable by a foreign court for similar offenses, or have pending cases related to financial misconduct or breach of trust.
How is the Advisory Body of the MIC structured, and what are its roles and responsibilities?
The composition of the Advisory Body consists of the Secretaries of the Department of Budget and Management (DBM) and the National Economic Development Authority (NEDA) as well as the Treasurer of the Philippines.
They advise on policy formulation, project guidance, and director appointments without participating in the management of the organization.
What measures are in place to safeguard the integrity and credibility of the MIF?
To establish and maintain the credibility of the MIF, the following safeguards are implemented:
- Adherence to applicable International Financial Reporting Standards and principles for financial reporting.
- Presence of an Audit Committee consisting of board members to oversee internal and external audits of the MIC.
- Independent internal audit function separate from MIC management.
- External audit conducted by a globally recognized auditing firm.
- Examination and audit conducted by the Commission on Audit
- Joint Congressional Oversight Committee comprising seven members from both the House of Representatives and the Senate.
- Compliance with the Santiago Principles.
What penalties will ensure accountability for violations and offenses?
Penalties for violations and offenses in the MIC include fines ranging from P1 million to P15 million for directors and officers who hold office while possessing disqualifications or certifying false financial statements.
Independent auditors who certify incomplete or inaccurate financial statements will be fined P5 million to P5 million, while individuals who allow themselves to be used for fraudulent practices will face fines and imprisonment for up to six years.
Those found guilty of violations under the law will be permanently disqualified from holding public office.
From what date will the MIF IRR become effective?
The IRR will become effective 15 days after its full publication in the Official Gazette or in a widely circulated newspaper.
At what time will DBP and Land Bank be required to remit their contributions?
DBP and LBP shall remit their respective contributions of P25 billion and P50 billion to the account of the Treasury bureau for the benefit of the MIC within five days following the effective date of the IRR.
Additionally, the Treasury will transfer funds to the MIC account within five business days upon receipt of the relevant MIC Board resolution. The specifics of the transfer from the Treasury to the MIC account will be discussed during the organizational meeting of the MIC Board.
When is the scheduled transfer of the national government's contribution
The P50 billion contribution from the national government will be deposited into the designated account of the MIC as per the instruction of the Secretary of Finance.
What items should be included in the agenda for the inaugural meeting of the Board of Directors?
Upon the majority assumption of the Board of Directors, their first meeting will be held to address matters such as determining the MIC's head office location, appointing the Corporate Secretary and key officers, establishing their compensation structure, formulating investment and risk management policies, and discussing other relevant topics.