Local newspapers have reported an ongoing investigation into a ₱1.4 billion investment in Alternergy Holdings Corp.’s perpetual preferred shares, valued at ₱14.5 per share, under a private placement deal with Alternergy. This deal, reportedly not cleared with the Government Service Insurance System (GSIS) Board of Trustees, prompted Ombudsman Samuel Martires to impose a six-month preventive suspension on GSIS President and General Manager Jose Arnulfo “Wick” Veloso and six other GSIS officials.

It's worth noting that the Commission on Audit (COA) previously disclosed in a 2023 report that GSIS had invested a total of ₱2.3 billion in shares of three companies with “no proven track record of profitability over the last three years.” On that financial point alone, GSIS should not have extended a welcome mat to these three companies. Now we know why the Alternergy issue isn’t going away.

With a strong cash flow, GSIS is certainly capable of making huge investments. In fact, as of March 2025, GSIS' total assets amounted to ₱1.83 trillion, serving 2.74 million GSIS members and pensioners. That said, the current investigation into the Alternergy deal ignited serious concerns for the GSIS Board of Trustees. They immediately issued a statement emphasizing that “safeguarding the institution’s integrity and members’ funds remains its highest priority,” with aims to “introduce more governance reforms, and further enhance system resilience and transparency.”

Today’s global capital market remains tough and highly volatile for investors. Current record highs in global stock markets are no guarantee these equity markets won’t turn sour in the near future, bonds still offer low yields, and some global economic experts have cautioned that global economic growth remains weak. High inflation also remains a serious and persistent threat, now spilling over to many nations. Inflation erodes wealth because it causes money to lose its purchasing power over time. If annual investment returns are less than the inflation rate, one may have more funds, but the sad reality is, one has become poorer. High inflation erodes most investments, making it more challenging to grow one’s wealth. Under such a capital market environment, investors prefer investment opportunities allowing them to move nimbly in and out with short-term maturities.

Let’s pause and think about this. A Perpetual Preferred Share is not as simple as it seems. To both corporate and individual investors, it’s a type of equity security that has no maturity date but pays a fixed dividend on an indefinite basis. Unlike bonds, there is no date when the original capital invested will be returned to the shareholders. This is the most defining characteristic of Perpetual Preferred Shares: the absence of a fixed redemption or maturity date, meaning the issuing company is not obligated to buy back the shares from investors at any point—perhaps why it’s called perpetual. Yet, these shares pay a fixed dividend, similar to a bond’s coupon payment, and the payments continue indefinitely provided the issuing company remains in business. And here’s another important point to consider: a Perpetual Preferred Share includes a call provision, allowing the issuing company to repurchase the shares at a predetermined price on or after a specific date. Theoretically, the investment could last indefinitely with a higher yield than most other fixed-income investments, perhaps to compensate investors for the lack of a maturity date, including the potential for dividend suspensions.

Since companies issuing perpetual preferred shares retain the right to “call” or redeem the shares at a predetermined price after a certain period, the call provision could potentially negatively impact the market value of Perpetual Preferred Shares in a rising interest rates scenario. This is clearly an interest rate risk.

Whenever much money is on the line, it is reasonable and absolutely essential for every fund manager to accumulate comprehensive knowledge in most investments, engage consistently in honest and smart investing, and maintain complete control and full awareness of any issue related to every investment made.

Investments involve risks. Just don’t forget to prepare for the unexpected.