1. An Analysis of the Investment and Loan Portfolio of Philippine
Social Security Institutions using the Capital Asset Pricing Model
Ralph Owen V. de Castro
DE-CEM, University of the Philippines-Los Banos, Laguna
Philippine Social Security
Institutions provide its beneficiaries
assistance based from the investments
they made as indicated in their social
security contract. However, the present
system failed to provide its
beneficiaries their full entitled benefits.
Thus, these institutions diversify
investments to address this problem.
Government Service Insurance
System (GSIS) and Social Security
System (SSS) are the two Philippine
Social Security Institutions. SSS
provides social protection for all of the
government employees in the
Philippines; while GSIS targets the
private employees/employers. Capital
Asset Pricing Model (CAPM) describes
the relationship between risks and
expected returns used in the pricing of
risky securities.
Assessing the performance of the
asset portfolio of GSIS and SSS from
1987 to 2006 was the main objective of
the study. Furthermore, the specific
objectives of the study were to analyse
the amount and allocation of
investment, returns to investments and
rate of returns for each asset portfolio;
determine the expected rates of return
on investment of the assets and the
portfolio; determine the risks of
particular assets and portfolio; and
employing Capital Asset Pricing Model
to assess the performance of the Social
Security Investment Portfolio.
Introduction
Secondary data of the investment
portfolios of GSIS and SSS were used
in the study. Annual data on the loan
and investment portfolio of GSIS and
SSS will be used to assess the
performance of their asset portfolio.
The data will consist of the following:
list of assets (loan and investment),
returns to investment or income per
investment asset and portfolio, and the
weight of the investment asset against
the total portfolio investment. The
expected rate of return of portfolio and
the risk of the portfolio was computed
for the descriptive and trend analyses.
GSIS increased its investment
portfolio stock during the period of
study 1999-2005 while the SSS
experienced a declining amount of
investment from 1999 to 2006.
In SSS, the Government Sector
constituted the largest share in the
allocation of investments until changes
occurred which led the Private Sector to
have the biggest share in the allocation
of investment. For GSIS, collection
from member loan investment
allocation is its biggest asset in
portfolio.
There is a well-balanced
allocation of investment in the SSS
portfolio as it approaches the end of the
period under study. The GSIS asset
allocation continues to focus on
member loans and the debt securities for
having the highest shares. The trend on
income shows a fluctuating behaviour
with significant changes especially in
the government and private sector.
The rate of return shows irregular
performances for both social security
institutions.
The study determined the
relationship between risk and expected
rate of returns of asset in portfolio by
providing different sets of efficient
points and choosing one optimal point
for the SSS investment portfolio.
Government sector were found to have
the highest expected rate of returns
among the assets followed by housing,
private sector, and member loans. While
investment in real estate properties has
the lowest expected rate of returns.
Private sector was found to have higher
risks relative to other assets.
Investment portfolio of SSS was
analyzed through CAPM, risk and
returns as key variables. The assets are
not perfectly correlated which
concluded that the SSS Investment
portfolio is well-diverse. When SSS
diversify assets, systematic risks
decrease but as well as expected rate of
returns. With lower risk of investment,
SSS would have to diversify with a
more non-risky asset. SSS would be
able to maximize utility in the optimal
portfolio point combination of the risky
and non-risky assets.
Conclusion
Results
Methodology
SSS invests to Housing Sector,
Real Estate Properties, Government
Sector, Private Sector, and Member
Loans from 1978 – 2006. Government
Sector had highest investment returns,
while Private and Housing Sectors had
increasing, and other assets had
constant. Whereas GSIS invests to
Loans to members, Loans to Non-
members, Government Guaranteed
and Government Loans, Debt
Securities, Equities, Real Assets, and
Interest Bearing Deposits from 1999 –
2005. Loan to Members’ holds
principal portfolio share, followed by
equities. Debt Securities investment
return was increasing until in 2005
then earned the biggest share among
GSIS’ assets. Equity and Non-member
Loans obtained negative return but
turned positive in 2002. Aside from
Interest Bearing Deposits which
increased in 2001 and Real Assets
which rose in 2003, GSIS assets had
stable rate of return.
In SSS, Government Sector has
the highest expected rate of return,
while Real Estate properties have
lowest. While Member loans’ growth
was stable, Private Sector’s was
declining.
All assets are low-risk excluding
private sector which includes risky
investments—stocks and marketable
securities.
In Capital Asset Pricing Model,
SSS investment portfolio showed low-
risk investment return due to
diversification or systematic
differentiation of assets portfolio.
In order to compute for the expected
rate of return of portfolio, the expected
rate of return per asset was calculated.
On the other hand, the standard
deviation of expected rate of return per
asset to the actual returns determined
the risk of an asset. The diversification
in a portfolio is also computed using
the covariance of assets. It measured
―the degree of association between
two assets that considers the extent of
a relationship in addition to the
direction‖ (de Castro, 2005).