First Global gearing for unit-trust market entry
First Global Financial Services is finalising three-year-old plans to launch into the unit trust market in Jamaica, following the February 18 lifting of the moratorium on new market entrants imposed in the 1990s.
The shift in policy was facilitated by passage of new regulations and comes amid a regulatory push for product diversification.
"GraceKennedy, through our subsidiary First Global Financial Services Ltd, is in the process of finalising plans to launch unit trust products in the Jamaican market in light of the recent lifting of the moratorium," group chief operating officer Don Wehby confirmed to the Financial Gleaner.
The Financial Services Commis-sion (FSC) and global watchdog, the International Monetary Fund, are concerned that Jamaica's securities dealers are now too heavily exposed on repo products, a risk that sits on their balance sheets.
With unit trusts, however, much of the risk is held by investors who buy the products.
"At this time, we see the unit trust offering as an important component of the suite of wealth-management products which we will offer to our clients as they continue to diversify their holdings away from a repo-based investment approach," said Wehby.
The conglomerate first signalled its intent to diversify into this line of business around 2006/07.
First Global will enter a $12.9-billion market that has only four players among hundreds of investment firms.
FSC deputy director George Roper said the agency was ready for the applications for registration of unit trusts and products that they expect to start flowing in.
Those already in the market, since last year, have become more aggressive in pushing sales of unit trusts, partly to restructure their balance sheets away from repos.
The early push, however, also gives them a head-start on securing share ahead of new market entries, in an arena where business has softened considerably over the course of the recession.
From $16.7 billion of funds under management in 2007, the market dropped to $11.9 billion at the close of 2008, but regained some ground last year.
Performance on the different products is mixed but annual yields on the 10 funds on the market now range between 3.6 per cent and 10.98 per cent.
That, however, is off the 16 per cent at the top end reported in January, but still considerably better than the period up to November 2009 when negative returns persisted.
Prices have also risen by an annualised 13-38 per cent across products at mid-March.
"For the investing, the opening up of the unit trust market will providean expanded universe of investment opportunities. We expect new unit trust funds to focus on areas within the economy that were not accessible to small investors previously, such as venture capital market, commercial real estate and infrastructure projects such as financing highways, airports, oil and gas, ports and tourism," said Anya Schnoor, chief executive officer of Scotia DBG Investments, at a company-sponsored seminar on March 19.
"We believe that the investing public will also benefit through greater diversification in their investment portfolio as unit trust funds are usually diversified at various levels including issuers, industry, maturity and asset class, thereby reducing the risk exposure of your portfolio," she said.
Scotia DBG Fund Managers is now the largest player in the unit trust market, displacing Pan Caribbean more than a year ago to now control about 53 per cent of industry funds under management.
GraceKennedy, meantime, says it will not apply for registration of its product until it had fully assessed the new unit trust regulations.
"We are currently carrying out a thorough review of all the implications of the regulations and business rules to ensure that our business model satisfactorily addresses both our profitability and compliance requirements once we launch the products," said Wehby.
Jamaica's unit trust funds are currently invested in real estate, equities and fixed-income securities.