i. Creates the Maharlika Investment Corporation (Section 4); Provides for adequate and appropriate funding sources (Section 6)

The Maharlika Investment Corporation (MIC) is created to act as the sole vehicle for mobilizing and utilizing the MIF. It shall have an authorized capital stock of 500 billion pesos (approximately 8.9 billion dollars), the 375 billion pesos of which shall have corresponding common shares available for subscription by the National Government, its agencies or instrumentalities, Government-Owned and Controlled Corporations (GOCCs), or GFIs. The remaining 125 billion pesos in capital shall have corresponding preferred shares available for subscription by the National Government, its agencies or instrumentalities, GOCCs or GFIs, and reputable private financial institutions and corporations. Of the 375 billion pesos capital with corresponding common shares, 125 billion pesos  (or about 2.2 billion dollars),  shall be initially subscribed from the investible funds of the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP), as well as the contributions of the National Government which include dividend remittances of the Bangko Sentral ng Pilipinas (BSP), the National Government’s share in PAGCOR’s  and other government-owned gaming operators’  and/or regulators’ income, privatization proceeds and transfer of assets, and other sources such as royalties and special assessments.

The MIF is designed to catalyze economic development by mobilizing government financial assets that are otherwise limited in use by current legal frameworks. Investment in the MIF is an investment diversification opportunity and a means to maximize returns for the two (2) founding GFIs. LBP’s investment to the MIC only accounts for around 3.7% of its investible funds; while DBP’s investment is equivalent to around 3% of its investible funds. These GFIs are very likely to earn more than what they are earning now considering that they are currently investing in conservative investments like government securities. These investments are reasonable and will not crowd-out other lending obligations that these GFIs need to fulfill under their respective mandates. In fact, the expected return of MIF which is estimated to be around 8.6% on average, is much higher than their cost of capital and the return in their current investment placements.

ii. Requires the MIC to implement sound and credible investment strategies consistent with the objectives of the MIF, taking into account the expectation for returns and risk tolerance and financial and commercial viability and sustainability.

The investment strategies will be subject to periodic review and stringent performance benchmarks – from portfolio to asset class through individual investment level.

iii. Imposes the adoption of sound and credible risk management strategies that will ensure that MIF is prudently managed.

The MIC is mandated to: adopt a long-term view through identification of projects that generate sustainable returns over the long term; mitigate risks through timely and adequate identification and management thereof; ensure balance sheet resilience; and invest in emerging megatrends (e.g., digitalization, ESG, and healthcare).

iv. Specifically enumerates allowable investments consistent with the mandates of the Fund (Article IV): cash, foreign currencies, metals, and other tradable commodities; fixed income instruments issued by sovereigns, quasi-sovereigns, and supranationals; domestic and foreign corporate bonds; listed or unlisted equities, whether common, preferred, or hybrids; Islamic investments, such as Sukuk bonds;  joint ventures or co-investments, mergers and acquisitions; mutual and exchange-traded funds invested in underlying assets; real estate and infrastructure projects; programs and projects on health, education, research and innovation, and other such investments that contribute to sustainable development; loans and guarantees to, or participation into joint ventures or consortiums with Filipino and foreign investors; and other investments with sustainable and developmental impact, as may be approved by the Board.

v. Requires and provides for a robust governance structure and effective operational systems (Article V).

The MIC will be:

a. Governed by a Board of Directors, composed of 9 members: Secretary of Finance as Chairperson, CEO of the MIC, President and CEO of the LBP, President and CEO of the DBP, two (2) Regular Directors, and three (3) Independent Directors from the private sector.

b. Guided by an Advisory Body composed of the Secretaries of the Department of Budget and Management (DBM) and National Economic and Development Authority (NEDA), and the Treasurer of the Philippines, on investment and risk management.

c. Assisted by a Risk Management Committee to ensure that the MIC is taking appropriate measures to achieve a prudent balance between risk and reward in both ongoing and new business activities.

vi. Required to adhere to the Santiago Principles and other internationally accepted standards of transparency and accountability.

vii. Mandated to adopt relevant and stringent financial reporting and audit systems to ensure transparency and accountability (Article VII).

The law imposes that financial reporting shall be in accordance with relevant International Financial Reporting Standards and principles, and that MIC shall be subject to strict examination and audit by numerous bodies – Audit Committee, Internal Auditor and External Auditor, and the Commission on Audit (COA). A Joint Congressional Oversight Committee is likewise created to evaluate the implementation of the law.

viii. Identifies offenses and provides steep penalties for violation thereof (Article IX).

The law provides for heavy fines ranging from 1 to 15 million pesos, and imprisonment term from 6 to 20 years for various offenses, such as willfully holding office while in possession of any disqualification, knowingly certifying the corporation’s financial statements despite its gross incompleteness or inaccuracy, willingly allowing oneself to be used for fraud, failure to sanction, report, or file appropriate action for graft and corrupt practices, among others.