Pension investment ease may be coming

Governor of the Central Bank of Barbados Cleviston Haynes says that officials were looking at the possibility of easing “restrictions” on how much pension funds could be invested overseas.

He gave this indication on Wednesday during his quarterly update on the Barbados economy.

Several years ago, pension funds were able to access up to US$250,000 in foreign exchange every quarter under a tiered system, but in more recent years these funds have been limited in the amount of foreign exchange they are able to receive from the Central Bank to invest overseas and must go through an approval process.

With interest rate hikes in the US and other international markets, investors are keen to cash in by moving more of their investments to those markets but are currently not able to do so due to the foreign exchange controls.

The Governor said while the Central Bank was willing to look at an ease, he explained the reason for the control mechanisms.

“If the differential between domestic and foreign rates becomes very wide, you are quite right that there is that risk that persons would want to move funds abroad, particularly institutions like pension funds,” he acknowledged.

“Pension funds also want to move funds abroad for the purposes of diversification, and therefore this is something of which we are aware, and which we are looking at to see the extent to which we can accommodate pension funds in terms of the investments abroad,” he disclosed.

However, Haynes said “Sometimes I say the reasons why you have exchange controls are largely because of the large institutional investors, because the large institutional investors have sometimes more funds to invest than the county may have foreign exchange. Therefore, there has to be some monitoring mechanism. In a sense, it is part of the price if you want a fixed exchange rate. There has to be some monitoring mechanism to allow us to be able to determine the path for which we would allow these significant investments abroad.”

“Large institutional investors can move substantial sums at very short notice and that is why I think there are what they may call ‘restrictions’ in place”, he said.

“But having said that , I think we have always accepted and this goes back many years, that we should allow the pension funds to be able to invest some of their resources abroad, but we would obviously hope that they would also be investing some of them in the domestic economy,” said Haynes.

Haynes previously reported that at the end of December 2020, private pension funds registered reported assets of some $2.4 billion or approximately 9.5 per cent of all financial sector assets.

He said then that the sector remained heavily invested abroad while direct exposure to the Government of Barbados was approximately 20 per cent.

Welcoming the suggestion that the Central Bank could look at providing an ease, René Delmas, Pensions Director of Barbados’ leading investment manager Fortress Fund Managers, told Barbados TODAY that while pension funds have historically built up overseas investment they were very much keen on diversifying their investments at this point.

“Any amount that can be given would certainly benefit the industry.  . . . We know the difficulties that Barbados’ economy has gone through especially since 2008, but I see high-end cars still coming in and that requires foreign exchange so it is a matter of priorities sometimes. I welcome any allowances the Governor can give to the industry,” said Delmas. (MM)