The Her­itage and Sta­bil­i­sa­tion Fund (HSF) may have lost val­ue right now be­cause of the gov­ern­ment’s re­cent with­draw­al and the state of the glob­al econ­o­my, but ac­cord­ing to one lo­cal fi­nan­cial ex­pert, when the COVID-19 cri­sis is over the fund will grow in val­ue.

In ex­plain­ing that the HSF is tied to the US stock mar­ket, UWI Lec­tur­er and Char­tered Fi­nan­cial An­a­lyst, Prakash Ram­lakhan told Guardian Me­dia, “When the pan­dem­ic is over and the economies re­cov­er, you are go­ing to see an ap­pre­ci­a­tion of the shares and the val­ue of the fund will in­crease over time.”

But how does the stock mar­ket re­al­ly work and what ef­fect does it have on the coun­try’s HSF?

T&T es­tab­lished in 2007 a Sov­er­eign Wealth Fund, which is a state-owned in­vest­ments fund that com­pris­es pools of mon­ey de­rived from the coun­try’s re­serves.

This is the coun­try’s equiv­a­lent of an in­di­vid­ual’s “rainy day” fund oth­er­wise known as mon­ey used in hard times. T&T’s HSF had a val­ue of US $1.76 bil­lion in 2007, it’s val­ue ap­pre­ci­at­ed to US $6.25bil­lion as of Sep­tem­ber 2019 and with the re­cent with­draw­al the coun­try has and es­ti­mat­ed US $1.5bil­lion dol­lars less than the last re­port­ing pe­ri­od.

The fi­nal val­ue of the fund is yet to be de­ter­mined as it fluc­tu­ates and this is due to the fact that it is not placed in reg­u­lar bank ac­count over­seas—it is in­vest­ed in in­ter­na­tion­al stock mar­kets (the Unit­ed States pri­mar­i­ly).

In an in­ter­view with Guardian Me­dia, char­tered ac­count and vice chair­man of the Stock Ex­change, Ian Nar­ine said, “Most peo­ple don’t par­tic­i­pate in the stock mar­ket di­rect­ly, but the stock mar­ket ac­tu­al­ly has a di­rect in­flu­ence on most peo­ple’s lives.”

Nar­ine re­marked that if some­one has put aside mon­ey to be in­vest­ed in a pen­sion—those pen­sion funds would be in­vest­ed in the stock mar­ket.

Ac­cord­ing to Nar­ine, the HSF is like the coun­try’s “rainy day” fund or pen­sion fund and it is in­vest­ed in the stock mar­ket—and there­fore should be con­cern of all na­tion­als of T&T, the own­ers of the funds.

Ram­lakhan ex­plained the stock mar­ket in the fol­low­ing way, “The stock mar­ket is a place where buy­ers and sell­ers of stock meet and trans­act, where stocks are re­al­ly units of own­er­ship of a busi­ness en­ti­ty.”

A stock mar­ket is com­prised of pub­lic com­pa­nies, where any mem­ber of the pub­lic can own shares in a com­pa­ny or com­pa­ny stock, al­so known as eq­ui­ty. When a com­pa­ny moves from be­ing pri­vate to pub­lic, it of­fers shares to the pub­lic so that in­di­vid­u­als can share in the pros­per­i­ty and growth of the com­pa­ny.

For ex­am­ple, if a com­pa­ny is­sues 1000 shares at $1 each, then the own­er of 10 shares will have $10 or one per cent of that com­pa­ny’s stock or eq­ui­ty. When some­one owns a com­pa­ny they can ex­pect to get a re­turn on their in­vest­ment in the form of div­i­dends (mon­ey paid to hold­ers of shares af­ter the com­pa­ny makes a prof­it) and cap­i­tal ap­pre­ci­a­tion (when the val­ue of the shares in­crease). An in­di­vid­ual can in­vest in as many com­pa­nies as he or she wants.

As of Sep­tem­ber, T&T’s HSF fund has al­lo­cat­ed 38.4 per cent in eq­ui­ties and 61.6 per cent in bonds. Bonds are in­stru­ments that al­so pay re­turns in the form coupon or in­ter­est pay­ments, but un­like a com­pa­ny that can last for as long as the man­age­ment runs it ef­fec­tive­ly, a bond has an ex­pi­ra­tion or ma­tu­ri­ty date.

Ap­prox­i­mate­ly 83 per cent of T&T’s HSF is in­vest­ed in the US mar­kets and 17 per cent in non-US mar­ket, in in­ter­na­tion­al eq­ui­ties. Ac­cord­ing to Nar­ine, T&T’s HSF has ben­e­fit­ed from cap­i­tal ap­pre­ci­a­tion in the US stock mar­ket as in the last five years it has been grow­ing or trend­ing up­wards for the most part.

He al­so in­di­cat­ed that when in­ter­est rates fall bond prices rise, and when this hap­pens the val­ue of the bonds that an in­di­vid­ual holds in­creas­es. Nar­ine in­di­cat­ed that the HSF has been in a de­clin­ing in­ter­est en­vi­ron­ment for the past 10 years or more, “and even now with this cri­sis, in­ter­est rates have come down, which would pos­i­tive­ly im­pact the fund.”

How­ev­er, the ad­vent of COVID-19 has al­so cre­at­ed mas­sive un­cer­tain­ty in the mar­ket, ac­cord­ing to Nar­ine, which can trans­late in­to the val­ue of the HSF de­creas­ing, as the in­crease in bond val­ue may not be enough to with­stand the shocks from the com­pa­nies that are af­fect­ed and there­fore a loss in the val­ue of some of the eq­ui­ty in com­pa­nies.

In spite of this Ram­lakhan not­ed, “Even though the share price of some of the com­pa­nies may have fall­en, and the val­ue of the fund de­clines–which is nor­mal—they (the HSF fund man­ag­er) may have no in­ten­tion to sell the shares, they will just hold on.”

He not­ed that when the dis­rup­tion from COVID-19 sub­sides and glob­al economies re­bound, share val­ues will in­crease once more along with the over­all val­ue of the HSF.

Over the years the pub­lic de­bate has been about the de­lin­eation be­tween the Her­itage Fund, to be used for sav­ings for fu­ture gen­er­a­tions and the Sta­bil­i­sa­tion Fund that is there to as­sist the gov­ern­ment in the a time of a short­age in rev­enues.

Both of fi­nance pro­fes­sion­als not­ed that knowl­edge of how the stock mar­ket works and how it im­pact­ed the HSF would em­pow­er cit­i­zens to hold gov­ern­ment ac­count­able and ask ques­tions with re­gard to its de­ci­sions and poli­cies on how the fund is man­aged and struc­tured.