Heritage and Stabilisation Fund rebounds by 10% in last year

THE Heritage and Stabilisation Fund (HSF) rebounded to increase in value by 10.6 per cent last year, said the HSF Annual Report 2023, laid in the House of Representatives on April 12 by Finance Minister Colm Imbert. This was a reversal of a sharp drop of 16.5 per cent the previous year. The fund now stands at US$5.39 billion.

The chairman's forward by Ewart Williams said the fund enjoyed a healthy recovery in 2023, compared to 2022 when global financial markets had their biggest sell-off in three decades.

Last year's rebound was not caused by fresh deposits from energy sector revenues but rather owing to a good performance by equity investments held within the fund. The report said despite high global oil-prices, natural gas prices fell sharply, even as falls in Trinidad and Tobago's oil and gas outputs resulted in "a sizeable shortfall" in government energy revenues compared to initial budget estimates.

"Accordingly the fund did not benefit from a government transfer as occurred in fiscal year 2022."

The HSF's recovery last year was largely owing to its "strong returns from equity investments in both the US and non-US developed markets."

The report related a steady reduction in inflation in the US and Europe after the US Federal Reserve and other central banks imposed monetary tightening.

That process uses high interest rates to make borrowing less attractive, to slow down an overheated economy and so curb inflation.

The report said last year, the HSF's US and non-US equity holdings "surged by 20 and 25 per cent respectively" (as measured by the Russell 3000 ex Energy Index and the MSCI EAFE ex Energy index, respectively.)

"The fund's fixed-income holdings also made a positive, albeit smaller, contribution to the net asset value of the HSF in fiscal year 2023."

The report said a few strategic and operational changes in 2022 also helped the fund's performance last year.

"Firstly, in the face of financial market uncertainty caused by the prolonged period of interest rate hikes, the HSF's holdings of fixed income assets – largely US Treasuries – were increased, at the cost of its equity holdings."

Also, in the challenging market environment, funds were reallocated from lesser to better performing equity managers, the report added.

"Secondly, as the board assessed global financial market conditions to be highly uncertain for most of fiscal 2022, a Government transfer of roughly US$346 million (roughly $2.4 billion) to the HSF, reflecting the surge in oil and gas prices during that year, was invested in short-term US dollar fixed deposits rather than allocated to its investment mandates."

The report said in December 2023, the board felt comfortable with the near-term global market outlook and reallocated maturing US$ deposits to the HSF's US short-duration fixed-income mandate.

The board expects that decision will improve the fund's return performance, its liquidity position and its asset deviations, the report said.

The report said the fund stands at US$5.39 billion, with governmental cumulative contributions of US$2.90 billion and cumulative withdrawals of US$2.50 billion. The fund has a 4.80 per cent rate of earnings since its inception.

The fund portfolio is: US core fixed income (29.6 per cent), US core domestic equity (23.1 per cent), US short duration fixed income (21.0 percent), non-US core international equity (19.5 per cent) and US dollar fixed deposits (6.7 per cent.)

An International Monetary Fund (IMF) technical assistance team reviewed the fund's performance in 2023 and has submitted a draft report for the Government to respond to, the report said.