Labor leader and former senator Ernesto Herrera on Tuesday cautioned the Government Service Insurance System (GSIS) against prematurely investing an additional $400 million overseas, saying that the global financial crisis could worsen in the months ahead before conditions start to recover.

Herrera, secretary-general of the Trade Union Congress of the Philippines (TUCP), issued the warning a day after one of GSIS’ foreign fund managers was bailed out by the Dutch government via a massive capital injection.

"Our sense is an institution that cannot prudently manage its own investments or finances cannot be totally trusted to skillfully look after other people's funds, or in this case, the money of GSIS members and pensioners," he said in a statement.

The Netherlands' ING Groep NV, one of the world's top 20 diversified financial services firms, got a $13.4 billion capital infusion from the Dutch Treasury on Monday.

A unit of ING Groep NV -- ING Investment Management -- is one of the two foreign fund managers of the GSIS's $600-million Global Investment Program (GIP) portfolio. The other is France's Credit Agricole Asset Management Ltd.

"While ING's internal financial condition may not directly impact client accounts, such as the GIP portfolio that it is managing on behalf of the GSIS, this nonetheless casts doubt on the reliability of the investment decisions being made by ING's fund managers," he said.

ING said Monday it expects to report a net loss of $670 million for the third quarter -- the firm's first in 50 years. The company blamed the loss on $2.68-billion worth of investment losses, asset write-downs and extra provisions for bad loans.

At the New York Stock Exchange, ING's own stock has plunged from a high of $45.21 a year ago to as low as $9.89 this month.

In return for the huge cash investment, the Dutch government received new ING shares representing 33-percent ownership of the Amsterdam-based global banking and insurance giant.

With 113,000 employees worldwide, ING provides banking, insurance and asset management services to more than 60 million customers in over 50 countries.

‘Bottom-feeding’

With global stock markets hovering at or near five-year lows, the GSIS earlier said it intends to start "bottom-feeding" by buying even more equities at fire-sale prices.

Herrera, however, warned that a deep recession or a prolonged and severe economic slump in the US and Europe could further drag global financial markets down.

"Most global fund managers are now staying very liquid and keeping their money in short-term cash, precisely because at this point, they still do not see any light at the end of the tunnel. The GSIS would do well to follow suit," he said.

GSIS president and general manager Winston Garcia earlier defended its decision to invest in foreign markets amid a worldwide financial meltdown, saying that the agency would have performed a lot worse had it not diversified overseas.

Garcia stressed that the fund should be evaluated not on a day-to-day basis, but rather on how much income it could show at the end of the year.

The GSIS previously reported that its P26.54 billion GIP portfolio is invested in global fixed income instruments (P10.46 billion), global equities (P4.13 billion), global property securities (P3.1 billion), and cash, short-term notes and other investments (P8.88 billion).

RP funds pummelled by global financial crisis

In a report by the Investment Company Association of the Philippines (ICAP), Philam Asset Management Inc. (Philam) and the GSIS were the two worst performers in the balanced fund category.

Balanced funds, in nature, protect clients against sharp declines in stocks and bonds.

As of October 20, Philam Fund Inc. lost 30.63 percent of its value since the start of the year, followed by GSIS Mutual Fund Inc. with 29.66 percent.

On a year-on-year basis, the performance of the Philam Fund and GSIS Mutual Fund showed declines of 33.58 percent and 32.88 percent, respectively.