Trinidad and Tobago’s Sovereign Wealth Fund Joins the Drawdown Club

Posted on 05/19/2020

Trinidad and Tobago’s deficit for fiscal 2020 was projected to be TT$ 5.3 billion but is now TT$ 15.5 billion according to the Trinidad Guardian. Even after securing hundreds of millions in loans and US$ 20 million from the World Bank, Finance Minister Colm Imbert said: “We have taken steps to allow for emergency drawdowns from the Heritage and Stabilisation Fund (HSF), not exceeding US$ 1.5 billion in any given year, for budgetary support in exceptional circumstances, such as the current pandemic.” Imbert was thankful for the sovereign wealth fund, saying, “As a country, we have long recognized 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.”

The local press notes “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 Guardian closed with a warning for those who might otherwise feel insulated from the problems in Trinidad and Tobago: “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.”

The Heritage and Stabilisation Fund reported a gain of 1.05% in the third quarter og 2019, the last quarter for which information is available. In a sign of danger to come, the fund listed U.S. equity markets as a major contributing factor to the fund’s growth. The fund was short of its benchmark due to its mandate to hold non-U.S. equities. The fund regretted that “Asset manager strategies within this mandate continued to detract from the portfolio, as investment decisions have been challenged by unpredictable trade policy developments and persistent end of cycle concerns.”

Keywords: Heritage and Stabilization Fund.