How are coun­tries around the world util­is­ing their sov­er­eign wealth funds dur­ing this time of cri­sis caused by COVID-19?

This is the ques­tion that the In­ter­na­tion­al Fo­rum of Sov­er­eign Wealth Funds (IF­SWF) is try­ing to get an an­swer to as they have start­ed to can­vass their mem­bers in an at­tempt to pro­duce re­search and in­sights in­to how long-term as­set own­ers are re­spond­ing to the COVID-19 pan­dem­ic.

“The Covid-19 pan­dem­ic has caused acute stress and volatil­i­ty in fi­nan­cial mar­kets not ex­pe­ri­enced since the glob­al fi­nan­cial cri­sis. As long-term in­vestors and sig­nif­i­cant sources of pa­tient cap­i­tal, IF­SWF mem­bers have an im­por­tant role to play in help­ing to sta­bilise both na­tion­al economies and the glob­al fi­nan­cial sys­tem,” the IF­SWF has stat­ed.

“IF­SWF will seek to shed light on how sov­er­eign wealth funds are col­lec­tive­ly ap­proach­ing the cur­rent sit­u­a­tion. It will al­so demon­strate how they are col­lab­o­rat­ing to share best prac­tices and in­sights at this chal­leng­ing time,” it stat­ed.

The IF­SWF is a vol­un­tary or­gan­i­sa­tion of glob­al sov­er­eign wealth funds com­mit­ted to pro­mot­ing good gov­er­nance and in­vest­ment man­age­ment prac­tices through di­a­logue, re­search and self-as­sess­ment.

The T&T Her­itage and Sta­bil­i­sa­tion Fund is one of the mem­bers of the IF­SWF.

Ac­cord­ing to Fi­nance Min­is­ter Colm Im­bert on April 27, the HSF was val­ued at US$6.1 bil­lion.

Im­bert said the HSF re­gained US$500 mil­lion in the weeks pri­or to his up­dat­ed bal­ance.

On Sep­tem­ber 29, 2000 un­der the lead­er­ship of then Prime Min­is­ter Bas­deo Pan­day a “rainy day” fund was es­tab­lished for this coun­try called the In­ter­im Rev­enue Sta­bil­i­sa­tion Fund (IRSF).

The IRSF start­ed with a bal­ance of $415 mil­lion.

The Her­itage and Sta­bil­i­sa­tion Fund was cre­at­ed by the Her­itage and Sta­bil­i­sa­tion Act No. 6 of 2007 and was es­tab­lished with ef­fect from March 15, 2007 to save and in­vest sur­plus pe­tro­le­um rev­enue.

The Her­itage and Sta­bil­i­sa­tion Fund start­ed with a bal­ance of US$ 1,402,148,155 which was trans­ferred from the IRSF.

The hy­brid fund es­tab­lished a Sta­bil­i­sa­tion com­po­nent to in­su­late fis­cal pol­i­cy and the econ­o­my, from ad­verse swings in in­ter­na­tion­al oil and gas prices, while the Her­itage El­e­ment was aimed at ac­cu­mu­lat­ing sav­ings from the coun­try’s ex­haustible as­sets of oil and gas for fu­ture gen­er­a­tions.

Apart from the COVID-19 pan­dem­ic and the mea­sures tak­en to stop its spread lo­cal­ly, T&T has al­so been hit by the dras­tic fall in oil and gas prices.

This coun­try’s deficit for fis­cal 2020, which was orig­i­nal­ly es­ti­mat­ed at $5.3 bil­lion, is now ex­pect­ed to ex­pand to $15.5 bil­lion.

While the coun­try has tak­en steps to ac­cess in­ter­na­tion­al fi­nan­cial as­sis­tance to ad­dress the un­prece­dent­ed fi­nan­cial de­mands of ovid-19, such as US$300 mil­lion ($2 bil­lion) from var­i­ous mul­ti­lat­er­al agen­cies —US$20 mil­lion from the World Bank, US$130 mil­lion from the IADB and US$150 mil­lion from the De­vel­op­ment Bank of Latin Amer­i­ca (CAF) it has al­so amend­ed the HSF reg­u­la­tions to fa­cil­i­tate emer­gency draw­downs.

“Fur­ther, we have tak­en steps to al­low for emer­gency draw­downs from the Her­itage and Sta­bil­i­sa­tion Fund (HSF), not ex­ceed­ing US$1.5 bil­lion ($10 bil­lion) in any giv­en year, for bud­getary sup­port in ex­cep­tion­al cir­cum­stances, such as the cur­rent pan­dem­ic.

“I wish to thank all mem­bers of this House for unan­i­mous­ly sup­port­ing the amend­ments to the leg­is­la­tion gov­ern­ing the HSF to al­low for such draw­downs. As a coun­try, we have long recog­nised the im­por­tance of build­ing up a for­eign ex­change buffer through our HSF which now has a Net As­set val­ue of US$6.1 bil­lion, US$500 mil­lion more than when we as­sumed of­fice in Sep­tem­ber 2015, de­spite with­drawals to­talling US$600 mil­lion since then and the col­lapse of the US stock mar­ket last month,” Im­bert said.

“I must em­pha­sise to the na­tion­al com­mu­ni­ty and to those mem­bers op­po­site who seem ob­sessed with gen­er­at­ing mis­in­for­ma­tion, that in rolling out our ex­pand­ed fis­cal and so­cial re­lief pro­grammes we have not yet with­drawn one dol­lar from the Her­itage and Sta­bil­i­sa­tion Fund. I wish to as­sure all con­cerned, there­fore, that draw­downs will be made from the Fund in a struc­tured man­ner, on­ly as and when re­quired, and not ar­bi­trar­i­ly or by vapse,” he said.

The HSF is ranked 51 out of the world’s sov­er­eign largest wealth funds by to­tal as­sets ac­cord­ing to the Sov­er­eign Wealth Fund In­sti­tute. But coun­tries us­ing their sov­er­eign wealth funds at this time is not un­heard of.

In fact, the Norges Bank In­vest­ment Man­age­ment, the world’s largest sov­er­eign wealth fund, for the first time in its his­to­ry will have to liq­ui­date as­sets to cov­er with­drawals by Nor­way’s gov­ern­ment.

The fund is val­ued at US$1 tril­lion.

Like T&T, Nor­way is suf­fer­ing a cri­sis be­cause of COVID-19 and the re­stric­tive mea­sures put in place to save lives as well as his­toric rout in oil.

Norges Bank Gov Oys­tein Olsen, said the fund pro­vides “room to ma­noeu­vre” through the worst eco­nom­ic cri­sis since World War II.

“It ob­vi­ous­ly is a pos­i­tive fea­ture of our so­ci­ety that we have this room to ma­noeu­vre, un­like a num­ber of oth­er coun­tries,” he said.

On Thurs­day, Olsen stunned mar­kets by de­liv­er­ing a quar­ter-point rate cut to ze­ro, the low­est ever in the coun­try. He said the se­vere eco­nom­ic de­cline war­rant­ed ul­tra-low rates.

Nor­way’s gov­ern­ment al­ready with­drew more mon­ey from the fund in March than in any oth­er month.

The pace of with­drawals is set to ex­ceed the fund’s cash flow from div­i­dends and in­ter­est pay­ments.

That means that in or­der to pro­vide the gov­ern­ment with the mon­ey it needs, the fund has to dump as­sets.

Al­though ex­act­ly how much is not yet clear, the fund’s re­bal­anc­ing re­quire­ments im­ply that its bond port­fo­lio will see the biggest di­vest­ments.

In its lat­est es­ti­mate be­fore a re­vised spend­ing plan is re­leased next week, Nor­way’s gov­ern­ment said it ex­pects this year’s bud­get to take a US$20 bil­lion hit due to the lock­down.

But with Nor­way’s “huge” wealth fund back­ing up the state, Olsen said there’s “no dra­ma in fis­cal pol­i­cy.”

Sov­er­eign wealth funds in the Gulf are al­so set to take a hit as they with­draw bil­lions to counter the re­ces­sion trig­gered by the COVID-19.

The de­cline in as­sets could ex­ceed $300 bil­lion this year, ac­cord­ing to the In­sti­tute of In­ter­na­tion­al Fi­nance.

The im­pact will echo all the way to Wall Street, where as­set man­agers count on cap­i­tal from the funds spon­sored by Abu Dhabi, Kuwait, Qatar and Sau­di Ara­bia.

Now that these coun­tries need the cash back home, hedge funds and pri­vate-eq­ui­ty firms risk los­ing a sub­stan­tial piece of busi­ness.