T&T’s Heritage & Stabilization Fund (HSF) (GlobalSWF) Global SWF

The HSF is Latin America’s second largest sovereign fund, and it has provided a sizable fiscal and external buffer, while accumulating savings for future generations of Trinidadians. We were delighted to speak with Mr. Ewart Williams, Chairman of the Board of HSF and Dr. Dorian Noel, Deputy Governor of the Central Bank of Trinidad & Tobago (CBTT).

[GSWF] It has been over 17 years since the HSF was established. Can you please shed a light on its foundation, mandate, successes and challenges during this time?

[HSF] The birth of the HSF was influenced by two major oil shocks (1973, 1979) and their impact on the economy of Trinidad and Tobago. The Gulf War during the 1990s led to strong recovery in global oil prices and T&T started exporting gas, so the Government introduced the Interim Revenue Stabilisation Fund (IRSF) to save part of the petroleum windfall. In 2007, following discussions with the World Bank, the US$ 1.4 billion savings of the IRSF were transferred to the Heritage and Stabilization Fund (HSF), which was set up with a transparent governance. Since its inception, the HSF has successfully fulfilled its stabilization mandate and helped with the country’s sovereign rating, while growing its value and exceeding the target annual real return of 3.5%.

[GSWF] In 2020, the withdrawal rules of HSF were amended to cater for exceptional circumstances. Can you explain why?

[HSF] The Covid-19 pandemic was unexpected and required large unbudgeted public expenditure on health services. Understandably, government revenue collapsed and unplanned expenditure stretched the public finances. In this context, the HSF Act was amended on March 26, 2020 to provide for the demands of the pandemic and future exceptional circumstances, which included disaster areas, dangerous infectious diseases, or precipitous declines in budgeted revenues which is based on the production or price of oil and gas. Looking to the future, the challenge will be the sustainability of HSF, which may imply a review of its funding model and asset allocation.

[GSWF] How do you see the asset allocation evolving, and will you consider investments in private markets in the future?

[HSF] Post-pandemic, equity has continued to outperform fixed income, with US equities leading other markets. The risk environment has changed, and as a result, the Board has recommended a review of the asset allocation constructed in 2008. A recent IMF mission has reviewed this matter and is currently finalizing recommendations.  At this stage, we have not given any consideration to private equities.

[GSWF] HSF portfolio is significantly exposed to US markets and currency. How do you see the current market uncertainty?

[HSF] European markets have been strongly affected by the war in Ukraine, so we reduced our exposure to regional securities in 2022. If we look at the outlook, the EU is still trying to catch up and we feel comfortable with our exposure to US bonds and equities for now.

[GSWF] How do you see recent developments in the SWF industry in the Latin American and Caribbean region?

[HSF] In the Caribbean, Guyana’s National Resource Fund (NRF) was established in 2019, and we expect that oil production will continue to expand, supporting a rapid growth in government revenues. The success of Trinidad & Tobago’s HSF in ensuring the country’s economic continuity through stress periods will be favorably viewed by other regional countries as a model worth adopting.