CHRONICLING OUR HISTORY, EXAMINING THE PRESENT AND PREPARING FOR THE FUTURE

Transcription

1 9/14/2012 TRINIDAD AND TOBAGO UNIT TRUST CORPORATION CHRONICLING OUR HISTORY, EXAMINING THE PRESENT AND PREPARING FOR THE FUTURE University of the West Indies Fires of Hope Conference Mr. Desmond Edwards

2 A HISTORY OF THE TRINIDAD & TOBAGO UNIT TRUST CORPORATION INTRODUCTION Madame Chairman, fellow panelist, ladies and gentlemen. I am deeply honoured by the opportunity afforded me to represent the Trinidad and Tobago Unit Trust Corporation at the historic Fires of Hope Conference. We at the Unit Trust, have over the years taken great pride in recording and celebrating our achievement and toward that end we have two publications. We are therefore delighted to share our story, particularly as it speaks volumes about the road we have travelled over these fifty years as an independent nation. I trust that in the time allotted to me, I would demonstrate that the Corporation has delivered on its mandate to: 1. Mobilize the savings of the community; and 2. Provide persons of modest means the facility of owning shares in listed companies. Page 2 Investment Research & Portfolio Management September 13, 2012

3 RATIONALE FOR THE ESTABLISHMENT OF THE T&TUTC The Development School of thought which emerged in the 1930 s and blossomed in the immediate post-war period played an influential role in determining the approaches adopted by newly independent states in the 1950 s and 1960 s. Trinidad & Tobago was not unlike its Third World Counterparts in this regard. In order to free itself of the Colonial structures and pursue the goals of social and economic advancement, the Government of the day embraced the Development Concept and set about creating new administrative structures in the industrial and financial services sectors. On the issue of national savings the sentiment is succinctly captured in the then Prime Minister s presentation of the Third Five-Year Development Plan in 1969, where he said and I quote: The country must mobilize its domestic financial resources more effectively by promoting and strengthening financial institutions geared to tap both the large and small savings, by appropriate fiscal policies in the local private sector Page 3 Investment Research & Portfolio Management September 13, 2012

4 The policy instruments identified to achieve the stated objectives were as follows: (i) A Workers Saving Plan; (ii) An Investment Unit Trust or Mutual Fund; (iii) Establishment of locally owned Commercial Banks; and (iv) The creation of a Development Finance Company. Those were the reasons which informed the establishment of the TTUTC. THE ESTABLISHMENT OF THE UNIT TRUST CORPORATION The Trinidad and Tobago Unit Trust Corporation (UTC) was established in 1982 and represented an important public policy initiative; on the one hand, to enhance the mobilization and allocation of domestic financial resources, and on the other hand, to ensure that citizens of the country participated in the income and capital growth of the country. Indeed, the Unit Trust Corporation of Trinidad and Tobago Act, No. 26 of 1981 (the UTC Act) brought together in a strategic alliance as promoters, the major players in the domestic financial system the Central Bank of Trinidad and Tobago, life insurance companies, commercial banks and non-bank financial institutions (NFIs), the National Insurance Board, (NIB) and the Government of the Republic of Trinidad and Tobago (GORTT). Page 4 Investment Research & Portfolio Management September 13, 2012

5 The said players, referred to as Initial Capital Contributors (ICs), provided aggregate seed capital in the sum of TT$5.0 million which was invested in the Corporation s very first mutual fund, the FUS now called the Growth & Income Fund. These participants were collectively entitled to six (6) out of a maximum of twelve (12) seats on the UTC s Board of Directors. This enabled these Organizations to contribute to the development of the Corporation during its formative years. THE ROLE OF THE INITIAL CAPITAL CONTRIBUTORS It is to be noted that all initial capital contributions were, and remain invested in the Growth and Income Fund as was statutorily required and hence were not used as risk capital or to fund the working capital requirements of the UTC. That role resided with the Central Bank which, between 1982 and 1991, bore all the establishment and promotional costs of the UTC under its developmental powers provided by section 36 (g) of the Central Bank Act. Moreover, as an initial capital contributor the Central Bank is entitled to distribution payments. However, between 1983 and 1991, the Bank agreed to forgo its distributions, opting instead to have the payments credited to the Guaranteed Reserve Fund of the First Unit Scheme. Payments were resumed only when it was adjudged that the fund had been placed on a sufficiently strong financial footing with an adequate level of reserves. Page 5 Investment Research & Portfolio Management September 13, 2012

6 With respect to the other initial contributors an alliance of the public and private sectors was promoted in the early stages of the national deliberations on the establishment of a national unit trust. Such an alliance was thought to be critically important for some of the following reasons: (i) to avoid giving the impression that the Corporation was stateowned; (ii) to obtain the commitment of the financial sector to the establishment of a single unit trust. Accordingly, this alliance was reflected in the legal framework on which the Corporation was established as well as the composition of the Corporation s board of directors. The initial capital contributors from the Private Sector were collectively entitled to four (4) out of a total of nine (9) seats on the UTC s board and were thus able to influence though not control the policy of the Corporation. There is no doubt that the Corporation has also derived tremendous goodwill from its relationship with its private sector capital contributors and the Central Bank. Page 6 Investment Research & Portfolio Management September 13, 2012

7 CORPORATE MISSION STATEMENT In the years that ensued, a number of open-ended mutual fund products and various plans were developed in an effort to promote the Unit Trust Corporation as a viable investment alternative. Our products and services are a true reflection of our corporate mission statement and mandate, which has evolved from emphasizing the promotion of savings and investment consciousness in the community, to an instrument focused on wealth creation, superior financial services and empowered and knowledgeable staff. FROM: To encourage and mobilize savings in the community, thereby fostering a savings and investment consciousness among our people and to channel those resources towards productive investments creating in the process, a wider share-holding democracy. TO: To create and enhance customers wealth by providing superior financial services, in a cost effective manner through dynamic leadership, good governance, advanced technology and an empowered and knowledgeable staff. Page 7 Investment Research & Portfolio Management September 13, 2012

8 UNIT SCHEMES/FUNDS ADMINISTERED BY THE CORPORATION Consistent with the evolution of its Mission the number of funds managed by the Corporation has increased to ten and is broken down as follows: 2 Income Funds 1 Balanced Fund 1 Retirement Fund 1Bond Fund 4 Regional Equity Funds 1 Sector Fund Ladies and Gentlemen, it should be noted that investors in the Growth and Income Fund benefit from a price guarantee. None of the UTC s other equity based funds are covered under such a price guarantee, making the FUS a very unique part of our family of funds. THE UTC NORTH AMERICAN FUND - NAF (FORMERLY THE CHACONIA INCOME AND GROWTH FUND - CIGF) Additionally the UTC North American Fund (NAF) is registered as an openend, diversified, management investment company under the 1940 Investment Act of the United States of America. In April 1993, it was given fund effectiveness by the Securities and Exchange Commission (SEC) which regulates mutual funds in that jurisdiction. Page 8 Investment Research & Portfolio Management September 13, 2012

9 HISTORIC FUND PERFORMANCE I now turn to the Financial Performance which entails the examination of certain key performance indicators under the following conditions\periods: (i) Period of Single Firm Industry ( ); (ii) Period of Liberalization ( ); (iii) Period of Expansion (1997 to 2007); (iv) Period of Globalization (2008 to 2010); (v) Period of Consolidation (2011 to present). Table I: Financial Performance during The Single Firm Industry Era (Inception to 1993) Key Performance Indicators (KPIs) 1982 (Inception) 1993 % Change Mutual Funds Under Mgmt ($TTMn) Unit Sales (TT$Mn) Funds Mobilized (TT$Mn) , Distribution Payment (TT$Mn) n/a Corporation s Retained Earnings (TT$Mn) n/a Unitholder Base 8,000 73, During the period as single firm industry the Fund-Size of the Corporation s mutual funds expanded by 1,389.7% from TT$42.0 million to TT$625.7 million between 1982 and 1993, while aggregate mutual fund sales grew by 1,001.3% from TT$36.0 million to TT$396.5 million and retained earnings reached TT$23.7 million by the end of Furthermore, the unitholder Page 9 Investment Research & Portfolio Management September 13, 2012

10 base blossomed from a mere 8,000 customers to 73,058 customers during this period, reflecting growth of 903.2%. THE LIBERALIZATION ERA ( ) The period 1994 to 1996 marked the gradual yet systematic removal of fiscal incentives from unitholders. Although this posed a considerable challenge to the Corporation, the growth process continued unabated. Table II: Financial Performance during TheLiberalization Era (1994 to 1996) Key Performance Indicators (KPIs) % Change Mutual Funds Under Mgmt ($TTMn) , Unit Sales (TT$Mn) Funds Mobilized (TT$Mn) 1, , Distribution Payment (TT$Mn) Corporation s Retained Earnings (TT$Mn) Unitholder Base 73, , Fund-Size more than doubled, growing by 107.6% from TT$625.7 million at the end of 1993 to TT$1,299.0 million by the end of The unitholder base expanded by 93.3% from 70,058 to 141,217 customer accounts during the period. By the end of the liberalization era, unitholders had debunked the view that they were hooked on incentives. Page 10 Investment Research & Portfolio Management September 13, 2012

11 THE EXPANSION ERA ( ) For the UTC the most significant development between 1997 and 2007, was an amendment to the UTC Act which expanded the Corporation s mandate to include Merchant Banking, Trustee Business, Credit Card Business and Financial Services. In this period Fundsize, unit sales, funds mobilized and retained earnings all increased more than ten fold. Distribution payment increased by over seven hundred percent and the unit holder base grew from 141,217 to 668,755 unitholder accounts. Table III: Financial Performance during The Expansion Era (1997 to 2007) Key Performance Indicators (KPIs) % Change Mutual Funds Under Mgmt ($TTMn) 1, , ,165.6 Unit Sales (TT$Mn) , ,108.1 Funds Mobilized (TT$Mn) 3, , ,428.6 Distribution Payment (TT$Mn) Corporation s Retained Earnings (TT$Mn) ,358.8 Unitholder Base 141, , From this expansionary period, the Board and Management of the Unit Trust Corporation has very clearly demonstrated both the entrepreneurial drive and organizational skills required to achieve organizational success and to flourish as a fully autonomous public interest institution. Our key Page 11 Investment Research & Portfolio Management September 13, 2012

12 performance indicators (KPIs) attest to the UTC s phenomenal growth during this period. THE GLOBALIZATION ERA ( ) In 2008, the UTC added five (5) new internationally focused mutual fund products to its portfolio. These included: (i) The UTC Energy Fund (EF), (ii) The UTC Asia Pacific Fund (APF), (iii) The UTC European Fund (ERF), (iv) The UTC Global Bond Fund (GBF), and (v) The UTC Latin American Fund This period also saw an intensification of customer relationship building activities by the UTC s Merchant Banking Department, and ultimately resulted in the securing of increased business mandates both domestically and within the region. Table IV: Financial Performance during TheGlobalization Era (2007 to 2010) Key Performance Indicators (KPIs) % Change Mutual Funds Under Mgmt ($TTMn) 16, , Unit Sales (TT$Mn) 8, , Funds Mobilized (TT$Mn) 57, , Distribution Payment (TT$Mn) Corporation s Retained Earnings (TT$Mn) Unitholder Base 668, , Page 12 Investment Research & Portfolio Management September 13, 2012

13 Notwithstanding the turmoil experienced in the global financial markets and domestic and regional economies, the UTC s mutual funds achieved 7.9% growth between the end of 2007 and the end of 2010, expanding from an aggregate fund-size of TT$16.4 billion to TT$17.7 billion. Sales retreated over the same period, falling from TT$8.3 billion to TT$7.1 billion, while total distributions declined by a significant 57.4% from TT$777.2 million to TT$331.0 million on account of a sharp decline in net investment income. Retained earnings nonetheless rose by 11.0% from TT$634.7 million to TT$704.6 million between the period 2008 to the end of 2010, and our unitholder base increased by a respectable 14.5% from 668,755 accounts to 765,818 customer accounts. THE CONSOLIDATION ERA (2011-present) The high profile corporate failure of one of the region s largest insurance conglomerates, in January 2009, the lingering negative impact from the Global Financial Crisis and sluggish domestic and regional economic growth were a wakeup call to all at the UTC. The Corporation s leadership embarked on a Strategic Planning Initiative covering the period The implementation of this strategic plan has resulted in a major organizational restructuring, including the work-out of the group s Merchant Banking operations and the disposal of the UTC Belize subsidiary. The key objective being to make the organization leaner and more efficient, while also enhancing corporate governance and risk management. Furthermore, Page 13 Investment Research & Portfolio Management September 13, 2012

14 it represented a realignment of business strategy back to the UTC s core business, i.e. mutual fund operations. Table V: Financial Performance during The Consolidation Era (2011 to present) Key Performance Indicators (KPIs) % Change Mutual Funds Under Mgmt ($TTMn) 17, , Unit Sales (TT$Mn) 7, , Funds Mobilized (TT$Mn) 82, , Distribution Payment (TT$Mn) Corporation s Retained Earnings (TT$Mn) Unitholder Base 765, , In the first year of this period of consolidation, funds under management grew by 3.8% from TT$17.7 billion to TT$18.4 billion in the 2011 financial year. Mutual fund sales, however, were relatively flat, rising by only 0.5% from TT$7.1 billion to TT$7.2 billion. Our total distributions improved from TT$331.0 million to TT$354.8 million, reflecting an increase of 7.2%, while the Corporation s retained earnings expanded by 10.0% from TT$704.6 million to TT$774.8 million. Additionally, our unitholder base registered 2.4% growth in 2011 moving from 765,818 to 784,107 customers accounts by the end of the year. Given all that I have presented here today and the patterns of growth demonstrated by the Corporation over the thirty years of its existence. I am convinced that the Corporation has delivered on its mandate. Page 14 Investment Research & Portfolio Management September 13, 2012

15 Indeed, with aggregate sales over the years topping $90.1 billion, funds under management standing at $21.5 billion as at June 30 th, 2012, and unitholder account base exceeding 784,107, there can be no gainsaying the fact that the Corporation has delivered on the first objective mobilizing savings. Furthermore, the Corporation s funds holdings of local and regional stocks, valued at in excess of TT$1.7 billion as at June 30 th provides ample evidence that unitholders own stocks which are held in trust by the Corporation thus fulfilling the second limb of the original mandate. STRENGTHENING CORPORATE GOVERNANCE Conclusion The UTC s achievements from inception to the present date were fashioned from three (3) decades of phenomenal success. In spite of various obstacles, we have consistently delivered on its founding mandate a mandate which remains just as relevant today as it was thirty (30) years ago. Indeed, the Corporation can be viewed as Trinidad & Tobago s own prototype Public Private Partnership organization, a business model which I strongly recommend for the provision of social goods and services. The Corporation has, in the recent past, taken steps to enhance its corporate governance systems and risk management framework, laying a solid foundation for future growth and expansion. It is therefore reasonable to Page 15 Investment Research & Portfolio Management September 13, 2012

16 expect that with continued strong, visionary leadership at both the Board and Executive levels, the UTC will soar to even greater heights of success, while continuing to be the model of institutional STRENGTH, SAFETY AND STABILITY in the financial service sector of the independent nation that is Trinidad & Tobago. I thank you. Page 16 Investment Research & Portfolio Management September 13, 2012