Invest your NIS funds wisely, say experts
Barbados and other Caribbean countries have been told to invest a portion of the National Insurance Scheme (NIS) funds into private/public sector partnership (PPP) projects.
During the closing of the CIBC Infrastructure Conference at the Hyatt Regency in Trinidad some financial business leaders suggested that the NIS be used to fund long-term infrastructure projects.
This, they said, would give greater returns than investing in Government paper. They say it also provided for diversification of portfolio.
The call came as NIS chairman Dr Justin Robinson said there was a need for more variety in where funds were invested.
President of Bazarian International Financial Associates, Carl Bazarian Senior, told Barbados TODAY governments should make the necessary regulatory changes that would allow for at least five per cent of the NIS to be invested in social developmental projects.
“I think that pension funds should allocate at least five per cent of their portfolio to invest in at least social infrastructure. That is housing, medicine and perhaps physical infrastructure like container ports, rather than investing in Government paper, because this will generate permanent jobs, but most importantly provide a social product,” said Bazarian, who is based in the United States.
He said: “Instead of investing in Government paper or perhaps investing abroad why not reinvest into your own people and improve their life? They would get a higher return, they will get diversity in terms of their portfolio and it is a matter of a regulatory decision by an appropriate authority to have it as an eligible investment and make it an investment grade. It will be a great return on investment.”
Adding that the regulatory changes were not “insurmountable”, he said it was most likely a Ministry of Finance decision that the pension fund should allocate a certain portion of its portfolio to invest at least a minimum in social infrastructure.
“I think it should be a ceiling of say five per cent and not mandatory because it is really based upon the projects, but the availability of capital up to five per cent of portfolio if the project makes sense: true PPP projects where they are self-sustaining and the repayment of the PPP is based upon the cash flow generated by the project,” added Bazarian.
Responding to questions, as part of a panel, executive director of corporate and investment banking at CIBC FirstCaribbean Jamaica, Berisford Grey, agreed.
“I think not only for Jamaica, but for the Caribbean in general, the real next frontier and piece of capital that needs to be unlocked is the funds available in pension funds to start participate in long-dated assets,” said Grey.
“We have seen in a lot of countries though, like Bahamas for example, where the pension funds came in and participated significantly . . . . This is the next frontier because most pension funds in the Caribbean, a lot of their assets are tied up in supplement paper, and we would like to see PPP enhancing opportunity unlocking those assets . . . to give them some diversification and long-dated asset,” said Grey.
And while acknowledging that there would need to be changes in regulation when it comes to investing pension funds in foreign currency denominated projects, Grey said this was something stakeholders should “fight” for.
He said the changes would be to create “diversification of pension funds”, and the ability for pension funds to actually participate in “a higher value investment opportunity”.
He said “a lack of sophistication and understanding” was among the reasons why some countries were afraid to use their NIS funds to back major projects.