Do we need a new sovereign wealth fund?

 

 

While NEL accommodates ownership being aligned to control as with TSTT and NFM, it also faciliates minority ownership, as with Phoenix Park Gas Processors Ltd and Atlantic LNG. Phoenix Park is a joint venture owned 51 per cent by NGC NGL Co. Ltd, 39 per cent by ConocoPhillips Trinidad and Tobago Holdings Inc and 10 per cent by Pan West Engineers and Constructors Inc.  NGC NGL Co. Ltd. is 80 per cent owned by NGC, while the other 20 per cent of NGC NGL Co. Ltd. is owned by NEL. NEL is an investment holding company which would be the perfect vehicle for acquiring CWC in line with the Tringen model. Many people who read the column were not aware that NEL accommodates T&T owning but not controlling a company like Tringen. The issue, raised by several readers, that NEL would be a "foreign buyer with little experience running an organisations of that size" simply does not arise because NEL can take ownership control, while allowing the current managers to retain operational control (as in Tringen) OR can become a significant minority holder (as with Phoenix Park or LNG). But because NEL was created with a specific purpose in mind, and has attracted investors based on that purpose, it may be unfair to change the mandate of NEL.

It would be better to create a new investment fund.

 

 

The rationale behind the establishment of an investment holding company or investment fund is that it is prudent that all countries with sizeable foreign reserves/savings should seek to diversify those reserves such that a significant percentage is being actively managed for the long-term benefit of the country. The underlying need for such a new investment fund is that T&T is a mature oil and gas province in which the energy reserves may be in structural decline. As a result of the fact that this country depends on the energy sector for a majority of its foreign exchange earnings, a decline in the energy sector reserves is likely to mean that in the long-term, (15 to 20 years) T&T’s foreign exchange reserves are also likely to decline—all things being equal. As it stands, a majority of T&T’s national savings fund is invested in low-yielding fixed income instruments. As at the end of September 2011, the last public report, T&T’s Heritage and Stabilisation Fund had a total market value of US$4 billion. Of the US$4 billion, 61.7 per cent was invested in fixed income instruments and 30.7 per cent was invested in equities with the balance of the fund coming from the cash contribution made by the Government on September 30, 2011. Of the US$2.5 billion that was invested in fixed income instruments, 23.6 per cent was held in US short-term instruments and 38.1 per cent in US long-term investments. The US$1.2 billion in the non-fixed income portfolio is shared almost equally between US equities and non-US equities.

 

 

A good model for the type of investment fund being referred to is Temasek, an investment company owned by the government of Singapore which was established in 1975 and which currently manages an investment portfolio worth US$157 billion. Incorporated in 1974, is an Asia investment company headquartered in Singapore. Supported by 12 affiliates and offices in Asia and Latin America, Temasek owns a S$193 billion portfolio as at 31 March 2011, concentrated principally in Singapore, Asia and growth markets. According to its Web site, Temasek has received a 17 per cent total shareholder return compounded annually for Temasek since inception and has a corporate credit rating of AAA/Aaa by rating agencies Standard & Poor's and Moody's respectively. Thirty-six per cent of its investment portfolio was held in financial services in 2011, while transportation and industrials comprised 23 per cent and telecommunications, media and technology was 22 per cent. In 2011, 45 per cent of the portfolio was invested in Asia, outside of Singapore, 32 per cent was held in Singapore and 20 per cent in Australia, New Zealand, North America and Europe. Another good example is Norway, which has two distinct sovereign wealth funds: the Government Pension Fund-Global, which is the fund into which all of Norway’s surplus oil wealth goes; and the Government Pension Fund-Norway. Norway’s global pension fund currently holds investments in bonds, equities and real estate of about US$610 billion and is often referred to as the largest single investor in the world.