Half a trillion dollars of foreign holdings

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  • Big numbers: This graph, from the Bermuda Coordinated Portfolio Investment Survey, shows the Island's foreign portfolio holdings by security type between 2005 and 2014. At the end of 2014 the total stood at $515 billion

    Big numbers: This graph, from the Bermuda Coordinated Portfolio Investment Survey, shows the Island's foreign portfolio holdings by security type between 2005 and 2014. At the end of 2014 the total stood at $515 billion

The financial services industry in Bermuda had foreign portfolio holdings of more than half-a-trillion dollars last year. At $516 billion, that was up 16 per cent on 2013.

While the Island does not feature in the world’s top ten places with the largest foreign portfolio holdings, it does account for a chunk of the $48.3 trillion of global cross-border holdings of securities.

This insight comes from data released for the first time by the Bermuda Monetary Authority (BMA).

Since 2001, Bermuda has been participating in a voluntary global investment survey, under the auspices of the International Monetary Fund. The Coordinated Portfolio Investment Survey tracks the cross-border holdings of portfolio investment securities in 78 countries.

The information shows where Bermuda financial services entities invest assets, and which countries are investing in Bermuda.

As a group, the Island’s insurers and reinsurers, investment funds and banks heavily favour the US for their portfolio holdings, with $268 billion invested in the country. That amounts to 52 per cent of the overall total.

The next most popular destinations for portfolio investments are Canada and Britain, accounting for 5 per cent each, followed by Cayman Islands, Ireland and Luxembourg.

Conversely, the countries and jurisdictions that are most significantly investing in Bermuda are the US and Hong Kong, which between them account for 72 per cent of the total.

Bermuda’s derived liabilities, which are the value of securities held by non-residents, were $487 billion at the end of 2014. Derived equity securities accounted for 88 per cent of the total, while debt securities, both long and short, made up the remainder.

The BMA report noted that the financial services industry “is the biggest sector in Bermuda and contributes over 60 per cent of Bermuda’s economic output”.

The insurance sector heavily dominates the Island’s foreign portfolio holdings and has done since the first investment survey was conducted in Bermuda in 2001. The sector’s foreign portfolio holdings had a $426 billion value at the end of last year. Investment funds were the next biggest in terms of foreign portfolio holdings with $80 billion, followed by banks with $8.2 billion and the Bermuda Government with $1.7 billion.

Debt securities, the vast majority being long-term, account for 89 per cent of the insurance sector’s foreign portfolio holdings, with the remainder in equities.

The value of investment funds in Bermuda has fallen from a peak of $209.8 billion in 2007. The value was $80 billion last year, down 15 per cent on the previous year. Unlike the insurance sub sector, the foreign portfolio holdings of investment funds were split more evenly between equities, at 55 per cent, and debt securities.

The banking sub sector’s foreign portfolio holdings were almost exclusively debt securities, with equities representing only 1 per cent.

Government’s foreign portfolio holdings were divided between equities, at 81 per cent, and long-term debt securities.

In terms of Bermuda’s derived liabilities, the figure closely matches the foreign portfolio holdings’ total. At the end of 2014 the total was up 5 per cent on the previous year. These liabilities consist mainly of equity securities, at $428.5 billion, with derived debt securities at $58.9 billion, predominately long-term debt securities.

Regarding the Bermuda survey, the BMA stated: “The primary purpose of this study is to provide countries with systematic estimates of their foreign portfolio assets, at market value, and to enhance the quality of statistics on global capital flow.”

It added: “Overall, the CPIS exercise provides countries with systematic estimates of their foreign portfolio assets by security type and geographical allocation, and enhances the quality of statistics on global capital flow.

“Bermuda’s participation contributes to an improved understanding of the jurisdiction as an international financial centre and re-emphasises Bermuda’s commitment to a high standard of transparency.”

Worldwide, the US had the highest level of foreign portfolio investment assets, valued at $9.5 trillion, followed by Britain with $3.9 trillion. In tenth place was Italy with $1.5 trillion.

Click on related media to access the full report.

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Published Dec 24, 2015 at 8:00 am (Updated Dec 23, 2015 at 8:48 pm)

Half a trillion dollars of foreign holdings

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