Sat | Feb 22, 2020

NIF weighs risk as it revises investment strategy

Published:Friday | September 14, 2018 | 12:00 AM

The National Investment Fund, NIF, indicates that it is restructuring its approach to investments in a way what will reduce risk, but in the meantime it is reporting a near 15 per cent growth in assets, mainly driven by returns on its equity investments, for the period ending March 2018.

Jamaica's bullish stock market has contributed to a 34 per cent increase in the pension fund's equities portfolio.

But the agency, which administers pension contributions to the National Insurance Scheme, says it is consistently looking for better outcomes, for two main purposes - to minimise risk and to deliver returns that contribute to a sustainable pension system.

Even as equities are outperforming, interest rates have been declining, which, in turn, would impact the returns on the NIF's fixed-income investments.

NIF's focus is to "maximise returns within acceptable risk limits whilst maintaining a level of liquidity to facilitate the timely payment of NIS benefits, bearing in mind that the scheme's operations continue to experience a deficit on an annual basis," the Ministry of Labour & Social Security told the Financial Gleaner in an update on the performance of the fund.

"With this in mind, the NIF continues to assess the asset allocation with a view to ensure that there is appropriate diversification, given the ever-changing dynamics of the investment environment in which we operate. In collaboration with the board, the current investment strategy is being revised," the ministry said through its communications unit.

Returns on investments for fiscal year ending March 2018 saw the value of the NIF portfolio rising 14.89 per cent. It was an improvement on the previous year, when the portfolio grew 13.13 per cent.

The most current data, for the first quarter of the current fiscal year, ending June 2018, places the size of the fund at $114.02 billion. For that quarter, the NIF grew its net assets by 7.37 per cent to $114.02 billion. That's triple the growth of 2.03 per cent in the similar period in 2017, with most of the gains linked to equities.

NIF said that in the past three years, the equity portfolio has grown by an average of 44.3 per cent - with the past year improving by 34.07 per cent - which it links to "improved profitability of the listed companies against the background of the improved economic climate".

In that three-year period, the equity portfolio grew from $12 billion to $24.33 billion at March 2018. In the June quarter, the portfolio recorded additional gains with a value of $26 billion.

As for the fund's real estate portfolio, the value of the assets have increased in the past two years, but not enough to offset the 32 per cent shrinkage recorded back in fiscal 2016

Last year, the portfolio grew 6.7 per cent, influenced by property upgrades and new projects. As at June, there was a further uptick in value to $14.84 billion.

The NIF's investments in bonds and loans has grown overall in the past three years, from $61 billion to $67 billion as at March 2018. In the June quarter, the portfolio spiked further to $73.68 billion.