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Tough decisions

Shawn Cumberbatch

Tough decisions

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A local investment fund with more than $100 million in assets and millions of dollars invested in Barbados and internationally is keeping a close watch on its capital, expressing fear about “low rates” in the United States and “significant credit risk . . . closer to home”.
Fortress Caribbean High Interest Fund, which is chaired by prominent businessman Geoffrey Cave, also warned that despite Government’s fiscal consolidation efforts, including the retrenchment of 3 000 public sector workers, “finding a ssustainable solution to the fiscal stresses will not be easy, or painless”.
This fund was established to provide an avenue for local, regional and international investment in “medium to high grade debt securities”.
With 59 per cent of its portfolio invested in Barbados, 38 per cent internationally, two per cent in the Eastern Caribbean, and one per cent in Jamaica, Fortress said the fund could not shift to “normal” unless investment conditions here and elsewhere improved.
“The Fund is still very much in capital preservation mode. We are facing low rates on the US and other developed markets, the good chance that they will move higher, and, closer to home, we are facing significant credit risk,” it said while reporting on the quarter ending last month.
“The fund’s portfolio continues to be very defensively positioned with a short average term to maturity and very limited exposure to Caribbean government debt. The portfolio also includes allocations to global bonds and specialist income funds that provide attractive expected returns and good diversification for the portfolio.
“This segment of the portfolio, together with various corporate bonds in Barbados, is throwing off yields in the range of three to eight per cent with acceptable levels of risk, and we expect them to continue doing so,” it added.
Fund managers expected to “continue generating a more modest return than usual in the months ahead until conditions permit us to shift to a more ‘normal’ stance, and position once again to earn a higher return”.
They are keeping a close eye on happenings in Barbados. While noting that “recent steps towards cost cutting by the Government have marginally improved the creditworthiness from a bond investment point of view”, Fortress said “significant stresses remain”.
“More and more borrowing is focused in short term Treasury bills due at least in part to investors’ unwillingness to buy long term bonds in the necessary quantities. The big benefit of this from the Government’s perspective is that interest rates are lower in treasury bills, so the cost to service them is lower.
“Still, the cost of interest on debt already outstanding is a huge portion of the Government’s budget, dwarfing the budgets of most Government departments, let alone the cost savings from the very painful staff reductions announced recently. Unfortunately, we continue to believe that finding a sustainable solution to the fiscal stresses will not be easy, or painless.”