Parliament established Trinidad and Tobago’s Unit Trust Corporation (UTC) in 1981 to channel domestic savings into the country’s capital markets. The initial capital for UTC came from the Central Bank and National Insurance Board, a public sector insurance company, as well as from the country’s commercial and merchant banks, and life insurance companies.
Jerry Hospedales, coordinator at the Divestment Secretariat at the Ministry of Finance who was the first executive director of the UTC, says the government established UTC to ensure that the average citizen participates in the income and capital growth of the country. “People could buy a savings unit, which was invested in local stocks and bonds. The government allotted 10% of all new equity issues shareholding to UTC, which was a mutual fund and unit trust,” says Hospedales. “So the small man [can] go to UTC and purchase equity and sell it back whenever he wants.”
UTC was launched with TT$40.96 million and one mutual fund product and has spawned a TT$13 billion ($2 billion) mutual fund industry. In 1993, the government opened up the mutual fund market to private sector financial institutions but UTC still dominates, with TT$7.6 billion in assets under management at the end of 2002. Yet UTC is under pressure from fast-growing competitors. Eutrice Carrington, manager of investment at UTC, says the trust would like to become a limited liability company so that it can behave more like a private sector company and appoint its board members. Under the current arrangement, several of the board members, who funded UTC with initial capital, are also its competitors. “UTC was established as an industry and is not consistent with operating in an environment with competition,” says Carrington. “Under the existing corporate arrangements, the competition sits on the board and this can only be resolved through a repeal of the Act of Parliament.” Last October, Prime Minister Patrick Manning said the government intended to change its status from a statutory corporation to a limited liability company, which would allow UTC to conduct an initial public offering.
RBTT Trust Ltd., the asset management arm of RBTT Financial Holdings Ltd, reported a profit of TT$37.1 million last year, an annual increase of 26%. Stephen Bayne, managing director of RBTT Trust Ltd., says, “We are seeing rapid growth in RoyTrin mutual funds. That is the star growth area.”
Caribbean Money Market Brokers, a full-service brokerage house and subsidiary of Jamaica Money Market Brokers, set up in Trinidad two years ago. It acts as a broker for its institutional clients but it also manages money market accounts for a small base of retail clients. CMMB offers US and TT dollar money market accounts. Ram Ramesh, chief executive officer of CMMB, says, “We saw the growth in the capital markets as fertile and we started trading in August 2000. In one year we raised TT$1 billion, 90% of it is institutional from unit trusts, pension funds and trust companies that need short-term investments for liquidity.” CMMB had total assets of TT$1.46 billion at the end of 2002.
Asset managers must work harder to boost the returns on longer-term financial products now that interest rates have fallen to 11% at the end of last year from 16.5% in 2000. “There is not a sufficient flow of long-term debt or equity, and we have too high a proportion in short term assets,” says Bayne. “Money market assets do not match the liability profile of these assets.” A vibrant equity market would help but that is slow in coming. In the meantime, real estate investment funds could offer an alternative longer-term investment.