Just How Rich Are The Marcoses Today?

Marcos is widely believed to have plundered US$ 5 billion to US$ 10 billion from the Philippines during his regime from late 1965 to early 1986.  Although some studies have estimated the plunder to be as high as US$ 17 billion, these are not widely cited.  The Presidential Commission on Good Government (PCGG), the government agency tasked with the recovery of the Marcos Wealth, has recovered around US$ 4 billion in the past 28 years.

Does this mean the Marcoses only have US$1 billion to US$ 6 billion left?

Definitely not!

First of all, the US$ 4 billion that the PCGG has recovered was recovered over a stretch of 28 years, giving the Marcoses enough time to squirrel away and hide most of those assets beyond the reach of the PCGG.  Moreover, the Marcoses have had more than enough time to grow those assets to even more unimaginable sums.

People of Great Wealth tend to have one primary investment strategy: Capital Preservation.  This capital preservation investment strategy generally has two goals:

• Preserve the Absolute Amount of the Wealth:

In other words, if the Marcoses had US$ 5 to US$ 10 billion in assets, they would like to have at least the same amount (US$ 5 to 10 billion) so many years later. In this case, at least 28 years later.

• Preserve the Amount of Wealth Relative to Inflation:

Most people intuitively understand inflation: that the buying power of one peso today is much less than the buying power of one peso ten years ago.  Similarly, having US$ 5 billion today is not the same as having US$ 5 billion in 1986.  You could buy more stuff with US$ 5 billion back in 1986.  Therefore, the Marcoses would have liked to preserve their wealth on an inflation-adjusted basis.

Just how much would the Marcos Plunder be on an inflation adjusted basis?  What was US$ 5 billion to US$ 10 billion in 1986 dollars would be worth US$ 10.7 billion to US$ 21.3 billion in 2014 dollars.

People of Great Wealth and Ambition also have another, often overriding goal: to grow their capital even further over and above what it would be on an inflation adjusted basis.  In other words, the Marcoses would most certainly want to grow their wealth beyond US$ 10.7 billion to US$ 21.3 billion.

There are many, many ways to do this.  The possibilities are infinite.  There are a multitude of ways for a wealthy but law-abiding citizen to grow his wealth in a most tax-efficient manner.  Just ask Mitt Romney. Given the magnitude of the Marcos wealth, its stateless status, its illegal origin, and the Marcoses' determination to evade the law, there are even more ways to hide and grow this wealth way beyond what they have lost to PCGG's recovery efforts.

This blog post will merely explore the investment possibilities that are available to anyone with much much more modest financial assets: the affluent but ordinary investor.

Given the size of the Marcos wealth, it would be inconceivable for the Marcoses not to have a significant portion of it invested in what the world deems the biggest, the safest, and most liquid investment market: US financial securities. Also, given the size of the Marcos wealth, it is entirely possible for them to invest in these securities and reinvest 90% of the interest payments received.  The income from the remaining 10% of interest payments would be more than sufficient to provide the Marcoses with a decent amount of cash flow to pay living expenses and whatever taxes they cannot avoid.  The calculations below assume that the investment instruments were held to maturity.  They account only for returns due to the stated interest rate and not total return (yield plus gain/loss in price of security)

Risk Free Investments

The safest US financial instruments are US Government Securities such as US Treasury Bills and US Treasury Bonds.

3-Month US Treasury Bills

If the Marcoses had invested all their assets in 3-Month US Treasury Bills from 1986 to 2013 and reinvested 90% of the interest payments they received, they would still have an estimated net worth of US$ 12.71 billion to US$ 25.42 billion as of year-end 2013. Moreover, they would have received a cumulative income distribution of US$ 0.86 billion to US$ 1.71 billion during this time.

10-Year US Treasury Bonds

If the Marcoses had invested all their assets in 10-Year US Treasury Bonds from 1986 to 2013 and reinvested 90% of the coupon payments they received, they would still have an estimated net worth of US$ 18.46 billion to US$ 36.92 billion as of year-end 2013.  Moreover, they would have received a cumulative income distribution of US$ 1.50 billion to US$ 2.99 billion over that time period.

Safe But Not Risk Free Investments

1-Month Eurodollar Deposits

If the Marcoses had invested all their assets in 1-Month Eurodollar Deposits from 1986 to 2013 and reinvested 90% of the interest payments they received, they would still have an estimated net worth of US$ 13.81 billion to US$ 27.61 billion as of year-end 2013.  Moreover, they would have received a cumulative income distribution of US$ 0.98 billion to US$ 1.96 billion over that time period.

AAA Rated US Corporate Bonds

Triple A Rated US Corporate Bonds are safe and have higher yields than US government securities.  They are not entirely without risk because even blue chip corporations can and do default from time to time but the risk is minimal.  If the Marcoses had invested all their assets in AAA Rated US Corporate Bonds from 1986 to 2013 and reinvested 90% of the interest payments they received, they would still have an estimated net worth of US$ 26.64 billion to US$ 53.28 billion as of year-end 2013.  Moreover, they would have received a cumulative income distribution of US$ 2.40 billion to US$ 4.81 billion over that time period.

Tax-Free Investment

20-Bond Municipal Bond Index

The Marcoses could also have invested in tax-free US Municipal Bonds.  If the Marcoses had invested all their assets in 20-Bond Municipal Bond Index from 1986 to 2013 and reinvested 90% of the interest payments they received, they would still have an estimated net worth of US$ 19.53 billion to US$ 39.05 billion as of year-end 2013.  Moreover, they would have received a cumulative income distribution of US$ 1.61 billion to US$ 3.23 billion over that time period.

US Equities

US Equities, by definition, have higher risks than debt instruments such as AAA Rated Corporate Bonds, Municipal Bonds, Eurodollar Deposits, and US Government Securities.  The easiest way to invest in US Equities is by buying into an Index Fund, preferably one that tracks the S&P 500 Index, which is often cited as a measure of the broad equity market.  Such a strategy would have certainly been available to the Marcoses in 1986 because Vanguard, which pioneered this investment strategy, has been offering this since the 1970s.

Why invest in an index fund? Because most fund managers cannot beat the broader market on a consistently long-term basis and at a lower cost

S&P 500 Index Fund

If the Marcoses had invested all their assets in the S&P 500 Index from 1986 to 2013 and withdrawn all the dividends they received, they would still have an estimated net worth of US$ 45.18 billion to US$ 90.35 billion as of year-end 2013.  Moreover, they would have received a cumulative dividend income distribution of US$ 11.75 billion to US$ 23.50 billion over that time period.

If the Marcoses had invested all their assets in an S&P 500 Index Fund from 1986 to 2013 and reinvested 90% of the dividend payments they received, their net worth would be significantly higher: US$ 77.61 billion to US$ 155.22 billion as of year-end 2013.  Moreover, they would have received a cumulative dividend distribution of US$ 1.67 billion to US$ 3.33 billion over that time period.

If the Marcoses had invested all their assets in an S&P 500 Index Fund from 1986 to 2013 and reinvested all dividend payments they received, their net worth would be significantly higher: US$ 82.35 billion to US$ 164.71 billion as of year-end 2013. 

Conclusion

Most likely the Marcoses would have employed a mix of all these investment instruments (stocks, bonds, deposits, government securities) plus many many more investment vehicles only available to the extremely wealthy.  In 1986, their wealth was already diversified with investments in art, jewelry, real estate, etc.  to reduce the risk of loss of capital.

How much are the Marcoses really worth? No one really knows.  Not even the PCGG.  Some of it turns up here and there.  But when Imelda Marcos says that she can pay off the Philippines foreign debt, she wasn't kidding.

Data Sources: New York University Stern School of Business.  St. Louis Federal Reserve.  Worldbank.org