One of Barbados’ main investment firms is already indicating that it is not prepared to readily invest in Government paper even at the end of the ongoing debt-restructuring programme, unless the returns match the risk.
Chief Investment Officer of Fortress Fund Managers Peter Arender said Government’s “aggressive” debt restructuring plan was necessary, but “unpleasant”.
He said Fortress would therefore keep a close eye on the developments and would take a cautious approach in the future, while explaining that for some time the company had been limiting its exposure to Government.
“We felt that investors in Government bonds were not being compensated for the very real, rising and substantial risk of permanent capital loss and it’s unfortunately the exact extent of that capital loss that is being negotiated now between creditors and the Government,” Arender told journalists today at the company’s second annual lunch-and-learn session.
“Certainly it is not a cause for happiness but we erred on the side of caution for a number of years and our next step is, as the situation normalizes . . . as it goes through, as the credit worthiness of the Government on the other side of this process comes out, we are open for business, we are ready and able to look at things again, once the return for our investors is commensurate with the risk we are taking,” he stressed.
Less than two weeks after assuming office following the May 24 general election, Prime Minister and Minister of Finance Mottley announced an immediate suspension of payments due to domestic and external creditors, as Government sought to restructure the island’s staggering debt.
She had also announced that Government would engage the International Monetary Fund (IMF) for a rescue package.
Arender said he expected the negotiations with the lending agency to last several months, and would have some impact on the “moderate to okay” local investment climate.
“We feel that [the debt restructuring] is in the category of unpleasant, but necessary. These are some steps being taken now that are within the restructuring negotiations that I am sure are not easy but they are absolutely necessary for the sustainability of Government finances, and that has a knock on effect to everything. So I think the positive out of it is that it is getting dealt with. It is important that things are being seen as they are and not how we wish they would be, and I think that is not immediately positive but overtime will set things up to be more positive,” he explained.
The investment manager said should investment opportunities arise in some state-owned entities Fortress would be “very happy to look” at them.
Giving an outlook on the company’s performance, Arender said he expected the high-interest fund to continue to yield less than average returns.
“On the equity side, we actually continue to see really good value around the world and some places even in the Caribbean . . . We are very happy with how we are positioned there and we are quite constructive on equities in the medium and long term,” he said.
In a separate interview, Vice President and Country Head of Royal Fidelity Jillian Nunes told Barbados TODAY she was waiting patiently for the outcome of Government’s ongoing talks with the IMF, which she anticipated would impact on a board range of financial services.
“I think any debt restructuring is something that will impact the industry as a whole and I don’t just mean fund companies, it is insurance, the banks, the pensioner who comes out of a pension plan and is trying to invest in Government bonds. It will affect everyone. Certainly we are keeping an eye on it. We don’t know which way they are going to go, but I know there are different groups who are speaking with the IMF and showing them the levels of debt they have and putting different proposals to them. So we wait patiently to see what the outcome is,” Nunes said, while stressing that with commercial banks continuing to give negligible returns, people were becoming more eager to find lucrative investment options.
“Certainly the climate has changed. We have to recognize that things in the economy have changed and persons’ mindsets have changed as well. What we have seen is a major shift with persons coming out from their regular savings accounts from the banks and moving into more investment products. So it is no longer a passive saving, but they are actively making their money work for them,” she said.