Despite having most of its Caribbean High Interest Fund portfolio in Barbados Government paper, one of the island’s biggest institutional investors says it is very concerned about the risks in Caribbean government debt.
In its first 2013 quarterly report, Fortress Fund Managers said it “remained squarely in capital preservation mode”.
According to the Fortress report: “We take the job of preserving capital very seriously and see significant risks in Caribbean government debt that are only now becoming more widely acknowledged.”
As a result of these concerns, Fortress said, it continued to hold many of its investments in short-term Government Treasury bills.
“We continue to hold a large portion of the fund’s Barbados-dollar investments in the relative safety of Government of Barbados Treasury bills and wholesale bank deposits with term out to 90 days.
“This, and low prevailing interest rates globally may continue to cause the fund to yield somewhat less than it has historically. The average yield to maturity of the fund’s holdings is
4.8 per cent, with an average term to maturity of 2.3 years,” the report noted.
Currently, the Caribbean High Interest Fund had no investments in the volatile Jamaica market or in Trinidad and Tobago.
Fortress conceded that it was only marginally exposed to the Jamaica restructuring efforts in Jamaica.
“This was a difficult quarter for investors in Caribbean Government bonds, and one which highlighted the value of diversification and caution.
“In February and March, two separate governments announced debt restructurings, unilaterally slicing the value of their bondholders’ investments. Jamaica was first, hitting its investors with their second restructuring in three years.
“Grenada followed up with its second restructuring in eight years. Bondholders will likely see their investments in bonds of these countries drop by between ten per cent and 50 per cent. Grenada bonds have already dropped from 50 cents on the dollar to 30 cents following the announcement,” Fortress Fund Managers revealed.
According to Fortress, it was only minimally exposed to these events. “We still had a small (0.5 per cent) position in Grenada bonds that we have held for many years. We expect the effect of this restructuring on the fund will be a one-time loss of approximately 0.2 per cent, which has already been reflected in the net asset value.
“The fund did not have any positions in Jamaica government debt, although we did begin to accumulate a very small position in the days after the latest restructuring was announced, as prices weakened, and may buy more if prices are pushed dramatically lower.” Fortress added.
