“If someone asked you how to invest $10,000…$100,000…or $1 million of local currency in TT, what would you advise them?”
Buttonholed at a catch-up with lots of smart tech folks, given my stint in finance I should have been able to come up with a suitably pat response, before zipping over to the buffet.
Instead, I was genuinely stumped. Muttering some pleasantries, I promised to get back to them and made my escape.
When I got home, the first thing I did was what I usually do – ask people smarter than me. I reached out to some of the usual suspects I know in asset management at some of the larger houses.
They mostly laughed and offered up some lacklustre corporate bonds, with rates touching about three per cent, nothing like the returns you could garner internationally.
The usual advice is to stick your money in a mixture of company shares and government bonds, to diversify your risk. Hence the immense rise of index funds (which invest a proportional amount in each of the companies in a stock exchange) to trillions of dollars worldwide.
Government bonds normally comprise a decent percentage of most people’s investment, gradually rising as you get older. But locally, it is time-consuming and expensive to buy them on your own if you are not an institution or are amongst the tiny percentage of the population that can afford to pay fees for a brokerage account. Ten-year government bonds are at 4.74 per cent, but tend to be gobbled up by institutional investors.
Fortunately, it turns out that some fintech companies are starting to democratise investing. Caribbean startup GSEC has just launched a trading platform to allow ordinary “retail” investors to buy and sell digital government bonds on the secondary market.
But let’s face it, when people ask about investments, nobody wants to hear about government bonds.
What else is there? Our local equities have a rough ten-year average annual return of 5.42 per cent, less than half of the long-term return of the US Standard & Poor’s 500 Index. And since the closure of Unit Trust’s Calypso fund, there aren’t even any local indices!
What, then? In a developing market with thin public investment options (if you want to sell or buy local equities, the market moves at the speed of molasses), small/medium-sized private equity and property have been the main engines of wealth creation.
Many people have done very well out of property, at least up until 2015. But since then, stagnation is the norm. You might not stand to lose a tremendous amount of money, but that’s about it, unless you find a particularly narrow niche of buyers or renters.
That leaves private equity – investing in private businesses. This is perhaps the last main untapped store of value. Our medium-sized businesses are largely family-owned and run. They are loath to allow outsiders in, not least because many of their internal controls would collapse without a family member at the till.
But time is running out for most of them – most founders are well past retirement age. A tremendous local intergenerational wealth transfer is starting to occur. The younger generation are more willing to sell, if not whole, then in part. Many of the sharper ones out of the second or third generation (they all have the title "head of business development") also realise this as an opportunity to transition their businesses from family shops to more disciplined outfits.
Consultant Waltnel Sosa recently launched ScaleUpTT, based on a similar model that has been successful in South America, to help companies like this move to the next level.
There are precious few opportunities for serious return in TT, but this stands to be one of them (I won’t touch on venture capital, which is anyway starved of serious deal flow). Diversification will only start gaining some steam when these traditional businesses start deploying their capital differently – and preferably towards exports.
For now, many of these deals are still word-of-mouth. It is time we made these types of investments more accessible to a wider range of investors. For sure, if you’ve not been an active investor before, you should probably stick your money in bonds and listed equities.
But regulators and the public should welcome anything that permits more diversification of portfolios. There must be some room for some budding new fund to carve out a name in this space, if only to save your columnist some embarrassment.
Editors note: The Unit Trust Corporation has advised its Calypso Fund is not closed and is actively traded on the TT Stock Exchange and accessible to investors via their brokers.