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New approach needed to T&T’s wealth fund

Sunday, August 14, 2011

Trinidad and Tobago’s sovereign wealth fund, more formally known as the Heritage and Stabilisation Fund (HSF), shot into the news this week following the disclosure by the Governor of the Central Bank, Ewart Williams, that the HSF would be impacted by the volatility in the United States equity markets. The most recent quarterly report of the HSF reveals that the total market value of its portfolios as at March 31 was US$3.759 billion. Of that amount, the fixed income mandates accounted for 63.7 per cent of the total investments, while the equity mandates made up the balance of the 36.3 per cent. In effect, according to the quarterly report, T&T has US$1.3 billion invested in international equities with the market value of the US Core Domestic Equity portfolio amounting to US$697.1 million eand the Non-US International Equity portfolio totalling US$668.5 million.

The question that the board of T&T’s sovereign wealth fund should be addressing is whether investing 36.3 per cent of the Fund in international equities and another 25 per cent of the Fund in short-term fixed income instruments is the optimal use of the HSF—part of which is meant to serve as the heritage of future generations. An indication of a different approach to deploying investments from a sovereign wealth fund came two days after Mr Williams answered questions on the HSF at a news conference held to delve into the July 2011 Economic Bulletin.

On Wednesday, China’s sovereign wealth fund, China Investment Corporation, signed an MOU with French energy giant GDF Suez, in which the Chinese company agreed to pay €2.3 billion for a 30 per cent stake in GDF Suez’s exploration and production unit and €600 million for the French group’s 10 per cent stake in Atlantic LNG Train I, as well as production payments associated with Trains II, III and IV. It seems that while a significant percentage of the assets of China’s sovereign wealth fund are tied up in short and long-term US Treasury Bills, the country has taken a decision to invest some portion of its long-term wealth in making large strategic investments in companies that produce goods that either are in short supply in China or that the Asian giant believes will be a good future strategic fit.

Another example is the International Petroleum Investment Company (IPIC), an investment company set up by the Emirate of Abu Dhabi in 1984. Among other investments, IPIC wholly owns Nova Chemicals, a Canadian plastics and chemicals company, and is a majority shareholder in the German construction firm MAN Ferrostaal, which is responsible for a significant percentage of the plants at the Point Lisas Industrial Estate. While the scale of the resources controlled by the sovereign wealth funds of China and Abu Dhabi vastly outshines T&T’s more modest effort, there appears to be some strategic intent partly driving new thinking in the deployment of the wealth of some nations. Yes, there continues to be an attempt to earn rates of return that are higher than those generated by a combination of US Treasuries and international equities. But there is also a definite attempt to control companies that may benefit the purchasing country’s long-term interests. And the focus seems to be on control—even if that’s not the way it starts out.

This is the kind of thinking that appears to be driving the managers of the sovereign wealth funds in Singapore, in Norway and in Abu Dhabi. Government’s control, but not ownership, of the CL Financial assets may be an avenue for this new approach to investing the T&T sovereign wealth fund. Clearly, if T&T is to adopt some of this new thinking, the Government will have to engage in a great deal of consultation with the nation because the success of the HSF is something in which every man, woman and child in T&T—and those who serve as trustees for the 17,000 plus new citizens born every year—should have a deep and abiding interest.


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