“As a re­sult of the $1.9 bil­lion with­draw­al, the to­tal fund bal­ance de­clined from $28.09 bil­lion in 2024 to $27.36 bil­lion by June 30, 2025”.

The above quote was tak­en from last week’s col­umn by BG Ed­i­tor An­tho­ny Wil­son, ref­er­enc­ing the state of af­fairs with the Na­tion­al In­sur­ance Board (NIB) in­vest­ment port­fo­lio. It was writ­ten un­der the head­line “How should re­tirees in­vest their life sav­ings?”

There have been many ref­er­ences to the chal­lenges at the NIB and the risk to its port­fo­lio due to ex­pens­es be­ing high­er than in­come. I have al­so writ­ten ex­ten­sive­ly about our ag­ing pop­u­la­tion, re­tire­ment and the chal­lenges at the NIB over the years in this col­umn. What hasn’t re­al­ly been dis­cussed is the im­pact this has on the lo­cal cap­i­tal mar­kets and in­deed on every cit­i­zen in this coun­try in re­tire­ment or ex­pect­ing to re­tire at some point in their life.

The re­al­i­ty is that pen­sion fund crises usu­al­ly ar­rive in stages. First come ac­tu­ar­i­al warn­ings that most peo­ple ig­nore. In a lo­cal con­text, that be­gan around 2012. Then come qui­et­ly ris­ing with­drawals from in­vest­ment ac­counts. Then, when the num­bers can no longer be ab­sorbed by rou­tine port­fo­lio man­age­ment, the in­sti­tu­tion that once an­chored the do­mes­tic cap­i­tal mar­ket be­comes one of its largest sources of sell­ing pres­sure, af­fect­ing the in­vest­ments of every cit­i­zen.

T&T has been mov­ing through those stages for near­ly a decade, and the ev­i­dence is now plain­ly vis­i­ble in the fi­nan­cial ac­counts of the NIB. At June 2024, NIB held a port­fo­lio of rough­ly $27 bil­lion, with 70 per cent in­vest­ed do­mes­ti­cal­ly and 63 per cent in eq­ui­ties. That makes it the largest sin­gle pool of long-term cap­i­tal in the lo­cal fi­nan­cial sys­tem, re­spon­si­ble for a mean­ing­ful share of the de­mand that holds bond yields down, keeps stock prices sup­port­ed, and gives mu­tu­al funds and pen­sion plans a sta­ble pric­ing en­vi­ron­ment.

When an in­sti­tu­tion of that size shifts its pri­ma­ry ob­jec­tive from max­imis­ing long-term re­turns to en­sur­ing there is enough cash to pay cur­rent ben­e­fit claims, the en­tire mar­ket shifts with it. That shift has been un­der way since at least 2017. By 2024 and 2025 it had be­come the dom­i­nant fact of NIB’s in­vest­ment be­hav­iour.

The struc­tur­al pres­sure dri­ving this is not com­pli­cat­ed. Con­tri­bu­tions come in from em­ployed work­ers; ben­e­fits go out based on what the NIB in­sures. For the sys­tem to re­main sol­vent with­out draw­ing down its re­serves, con­tri­bu­tions plus in­vest­ment in­come must at least cov­er ben­e­fit ex­pen­di­ture.

In 2015, ben­e­fit ex­pen­di­ture was ba­si­cal­ly matched by con­tri­bu­tion in­come. It was al­most asi­nine that no pol­i­cy in­ter­ven­tions took place at that time. By 2025, ben­e­fit ex­pen­di­ture and ad­min­is­tra­tive costs out­striped con­tri­bu­tion in­come leav­ing the ap­prox­i­mate­ly $2 bil­lion gap high­light­ed at the start of this col­umn.

Dur­ing the decade un­der dis­cus­sion, the con­trib­u­tor side of that equa­tion was dam­aged re­peat­ed­ly by labour mar­ket shocks. The in­sured con­trib­u­tor count fell from 516,926 in 2015 to a trough of 404,197 in 2020, a de­cline of more than 112,000 reg­is­tered work­ers. The Petrotrin re­fin­ery clo­sure in 2018 alone was es­ti­mat­ed by NIB to have elim­i­nat­ed more than 7,000 jobs and re­duced an­nu­al con­tri­bu­tion in­come by be­tween $108 mil­lion and $134 mil­lion. Ap­pre­ci­ate that con­tri­bu­tions are sup­posed to be in­vest­ed and this is an­nu­al so the com­pound­ed im­pact of this is stag­ger­ing­ly sig­nif­i­cant.

The clo­sure of en­ti­ties like Petrotrin stripped the NIB of pay­roll con­trib­u­tors im­me­di­ate­ly, while the ben­e­fit oblig­a­tions those work­ers ca­reers helped to gen­er­ate re­main in the sys­tem per­ma­nent­ly. Over­all, the ra­tio of con­trib­u­tors to pen­sion­ers, al­ready down from 4.7 in 2008 to 2.7 by 2019-20, con­tin­ued to de­te­ri­o­rate as de­mo­graph­ics worked against any re­cov­ery.

In­vest­ment im­pact

Now we get to the key point. As ex­pens­es be­gan to match con­tri­bu­tions, NIB had to man­age its port­fo­lio dif­fer­ent­ly. The NIB is ex­pect­ed­ly and tra­di­tion­al­ly a long-term in­vestor as are most pen­sion and in­sur­ance in­vestors.

In that con­text a port­fo­lio man­ag­er asks how to gen­er­ate the best risk-ad­just­ed re­turn over a long hori­zon. Over time the port­fo­lio had to be man­aged dif­fer­ent­ly in that it had to en­sure that there was suf­fi­cient cash on hand (liq­uid­i­ty) to meet ex­pense oblig­a­tions. A liq­uid­i­ty man­ag­er asks how to en­sure cash is avail­able in the next quar­ter.

The an­swer to the sec­ond ques­tion al­most al­ways means short­er ma­tu­ri­ties, more cash, less rein­vest­ment of ma­tur­ing bonds, and a will­ing­ness to sell if nec­es­sary stocks that were bought for the long term. That shift has a pro­found and al­most per­ma­nent im­pact on the cap­i­tal mar­kets.

It starts with the lo­cal bond mar­ket, since NIB’s fixed in­come port­fo­lio of TT$7.18 bil­lion at June 2024 was more than half con­cen­trat­ed in gov­ern­ment and gov­ern­ment guar­an­teed lo­cal in­stru­ments. When a buy­er of that scale stops rolling ma­tu­ri­ties in­to fresh pur­chas­es, the pri­ma­ry mar­ket los­es one of its few re­li­able long du­ra­tion bids and the Gov­ern­ment (GORTT) los­es a steady buy­er of its bond of­fer­ings.

The banks have ab­sorbed some of the re­sult­ing pres­sure but this is not sus­tain­able. GORTT se­cu­ri­ties ac­count­ed for ap­prox­i­mate­ly 47 per­cent of com­mer­cial banks in­vest­ment port­fo­lios at the end 2024. That con­cen­tra­tion re­flects a mar­ket where at­trac­tive long term pri­vate in­stru­ments are scarce and where sov­er­eign pa­per fills the bal­ance sheet by de­fault. The Cen­tral Bank has iden­ti­fied the sov­er­eign/fi­nan­cial sec­tor link­age as a fi­nan­cial sta­bil­i­ty con­cern, and part of its ori­gins lies in the slow with­draw­al of NIB as a rein­vestor.

The eq­ui­ty and mu­tu­al fund im­pact is al­so re­al. NIB’s lo­cal eq­ui­ty port­fo­lio held sig­nif­i­cant po­si­tions in ma­jor list­ed com­pa­nies, and it’s shift to­ward liq­uid­i­ty preser­va­tion re­moves one of the few con­sis­tent sources of lo­cal stock mar­ket de­mand in a shal­low mar­ket.

The mu­tu­al fund route adds an­oth­er lay­er. When a large in­sti­tu­tion­al in­vestor like the NIB, re­deems units in a mu­tu­al fund, the fund man­ag­er must raise cash from some­where, and in most cas­es that means sell­ing un­der­ly­ing se­cu­ri­ties, whether bonds or eq­ui­ties. In the­o­ry the NIB with­out plac­ing a stock mar­ket sell or­der di­rect­ly, can cre­ate sell­ing pres­sure by virtue of mu­tu­al funds with eq­ui­ties hav­ing to sell. Once this hap­pens stock prices fall, which then has an im­pact on the net as­set val­ue of the mu­tu­al funds, which then gen­er­ates fur­ther sell­ing pres­sure.

A neg­a­tive feed­back loop has be­gun and was pre­cip­i­tat­ed by the lack of at­ten­tion to the sit­u­a­tion at the NIB, af­fect­ing every cit­i­zen of this coun­try that has mon­ey in an in­vest­ment ac­count.

The above im­pacts are sub­stan­tial but it gets worse. Once the ab­sense of buy­ing and even the sell­ing pres­sure be­gan on the lo­cal mar­kets, those mar­kets will un­der­per­form. We have seen this ef­fect on the lo­cal stock mar­ket. While this un­der­per­for­mance is tak­ing place, the US mar­kets have been out­per­form­ing. The lo­cal sell­ing pres­sure means that the struc­tur­al in­cen­tive across the in­vest­ment com­mu­ni­ty tilts to­wards US dol­lar in­vest­ments. This drains fur­ther liq­ui­ty from the lo­cal mar­kets, es­pe­cial­ly the stock mar­ket.

The ef­fect shows up in the for­eign ex­change (FX) da­ta. A cap­i­tal mar­ket en­vi­ron­ment char­ac­terised by thin do­mes­tic liq­uid­i­ty, weak in­sti­tu­tion­al de­mand for TTD as­sets and the NIB, whose best re­turns are abroad adds per­sis­tent pres­sure to ac­quire for­eign ex­change and makes the case for hold­ing TTD as­sets hard­er to sus­tain.

Sum­ma­ry

To sum it all up, in 2016, the ac­tu­ar­i­al ad­vice was al­ready clear: the na­tion­al in­sur­ance sys­tem was not fi­nan­cial­ly sus­tain­able and to­tal in­come would even­tu­al­ly stop cov­er­ing an­nu­al ex­pen­di­ture. The lev­el of neg­li­gence in ad­dress­ing this mat­ter is un­prece­dent­ed.

The cost of that de­lay was not mere­ly ac­tu­ar­i­al. It changed what NIB does in the mar­ket, struc­tural­ly and over the long term. A $27 bil­lion in­sti­tu­tion that once ac­cu­mu­lat­ed as­sets, rolled over bond ma­tu­ri­ties, and pro­vid­ed a stock mar­ket bid now us­es those same as­sets to write ben­e­fit cheques.

The bond mar­ket is thin­ner, sov­er­eign con­cen­tra­tion in bank port­fo­lios re­mains el­e­vat­ed, lo­cal stock mar­ket liq­uid­i­ty is weak, the FX mar­ket re­quires reg­u­lar cen­tral bank sup­port. When NIB shifts from sup­port­ing the mar­ket to draw­ing liq­uid­i­ty from it, pri­vate pen­sion plans face a more dif­fi­cult pric­ing en­vi­ron­ment.

To be clear, the NIB is not the on­ly rea­son for all of this, es­pe­cial­ly the FX com­po­nent. Part of that was due to a sim­i­lar­ly non­sen­si­cal for­eign ex­change pol­i­cy over the past decade. The NIB’s po­si­tion is how­ev­er a sig­nif­i­cant and per­sis­tent cat­a­lyst.

For or­di­nary cit­i­zens, the NIB cri­sis is not an ab­strac­tion about fu­ture pen­sion ad­e­qua­cy. It is vis­i­ble now in the per­for­mance of your work­place pen­sion plan, in the net as­set val­ue of your mu­tu­al funds, in the queue at the for­eign ex­change counter, and in the nar­row­ing set of at­trac­tive TTD in­vest­ment op­tions avail­able to savers.

The fund that was built to pro­tect work­ers is now through neg­li­gence, neg­a­tive­ly im­pact­ing the cap­i­tal mar­kets that pro­tect every­one else.

Ian Nar­ine is a fi­nan­cial con­sul­tant whose port­fo­lio in­cludes man­ag­ing in­vest­ment port­fo­lios. Please send your com­ments to ian@ian­nar­ine.com