CalPERS Will Keep Philippines Stocks

The Philippines on Monday won a fight to keep the California Public Employees’ Retirement System invested in the nation’s stock market after a high-profile campaign that saw hundreds of Filipino Americans turn out to lobby the giant pension fund.

CalPERS’ board voted to include the Philippines, India and Peru among so-called emerging-market countries in which the fund can own stocks.

The decision assures that Sacramento-based CalPERS won’t divest itself of $67 million of Philippine shares already in the fund.

CalPERS, which has long been active in pressing U.S. companies to improve their governance, also has required emerging-market countries to meet certain standards to qualify for investment. Those standards are part of a scoring system used by Wilshire Associates Inc., a Santa Monica-based consulting firm that advises CalPERS.

A nation’s score is based on factors including the ease with which stocks can be bought and sold, the country’s political stability, and how companies address shareholder-rights issues.

The Philippines last year fell below CalPERS’ minimum score. The system provides a one year “cure” period, which for the Philippines expired in February.

The CalPERS board allowed a 30-day extension in February, then approved another 30-day extension at its March 15 meeting, which saw more than 300 Filipino Americans turn out to support the fund’s continued investment in the island nation.

The Philippine government feared that a divestment decision by CalPERS would taint the nation’s image with other global investors. Philippine Ambassador Albert del Rosario attended the March meeting and criticized the CalPERS scoring system as being unfair.

On Monday, with Del Rosario and another large crowd of Filipino Americans in the audience, the CalPERS board said the country’s investment score had improved because of changes in Philippine law since the fund’s last meeting.

The changes included requiring companies to adhere to the principle of “one share, one vote,” meaning that certain shareholders could not acquire super-voting rights at the expense of others; and that shareholders could have the option of voting their shares by mail rather than in person at annual meetings.

At CalPERS’ March meeting, the board instructed Wilshire Associates to take another look at the Philippines and other nations for possible “new findings” that might affect their scores.

But Sean Harrigan, CalPERS board president, said the Philippines’ score improved solely because of the changes in the nation’s laws on shareholder rights.

“The [scoring] system wasn’t changed. We just got additional information,” Harrigan said.

India and Peru also received qualifying scores after changes in their financial systems, CalPERS said.

Harrigan said the Philippines’ lobbying effort was helpful to CalPERS because it showed “inefficiencies” in how the country scoring system was implemented.

Specifically, Harrigan said, the board now believes it “needs to give countries the opportunities to raise issues” about their standing well in advance of board votes on whether to maintain investment or to divest.

After the meeting Monday, Del Rosario told Reuters that he was relieved by the CalPERS vote. “It reinforces the partnership between CalPERS and the Philippines,” he said.

Separately Monday, CalPERS said it would continue to review Newport Beach-based Pacific Investment Management Co.’s status as manager of about $200 million in bonds for the retirement system. The review began after the mutual fund company was sued by New Jersey securities regulators in February, alleging that the company allowed a favored investor to improperly trade some of its funds.