Plea for national investment fund
Given the turbulent economic times in which Bermuda finds itself because of Covid-19, it is time for the Government to examine establishing a national investment fund to help insulate the economy from economic shocks and, at the same time, help to positively support Bermudians.
Other countries are ahead of us in this area; we need to catch up with the likes of Trinidad&Tobago, Canada, New Zealand, Britain and Singapore, who have similar structures.
The overarching mandate for most of these national funds is to manage their governments’ investment holdings commercially, and to create and protect value for their people as shareholders.
They also craft and implement strategies for realising value for their governments’ ownership stake in companies in an orderly and active way over time. This is normally done in a framework of protecting and creating value for their people as shareholders, while keeping in mind their governments’ mandate to maintain financial stability and to act in a manner that promotes and supports healthy competition in their economies.
These countries also use national investment funds to generate income and profits to the benefit of their economies and citizens. They are also used to stabilise their countries’ economies through diversification, and to generate wealth for future generations.
Because these funds are normally invested in conservative portfolios, from a performance perspective they may not suffer as badly as other, more aggressive portfolios. In addition, they may be used for stabilisation purposes, and it can help to insulate economies from internationally transmitted shocks such as the 2008 global financial crisis and the effects of the Covid-19 pandemic.
Britain has United Kingdom Investments Ltd. This entity acts as the shareholder, and leads and guides the establishment of the British Government’s independent quangos. This entity also has an essential role in overseeing the Government’s interest in publicly held companies. With its specialised financial expertise in governance, asset management and corporate finance, they advise the Government on corporate finance, restructuring and corporate actions, and other financial transactions.
According to the UKGI 2019-20 financial report, its focus pivoted to its corporate finance advisory role and to three areas in particular:
• UKGI’s capability to advise Government on situations of corporate distress was utilised in a number of complex cases involving the Royal Bank of Scotland and the Lloyd’s Banking Group and other entities, such as helping to secure the future of British Steel via a takeover by Jingye
• UKGI advised on several M&A transactions involving the government supply chain, securing jobs and R&D spending.
• UKGI has been working hard to support the Government in mitigating the impacts of the Covid-19 pandemic on the British economy
In Singapore, the Government has Temasek Holdings, a generational investor that “seeks to always make a difference with tomorrow in mind”. This is run independently of government to ensure that it functions commercially, and that its investments compete on a level playing field as sovereign wealth funds or institutional investments. It also has the ability to issue its own debt instruments.
According to its charter, its “investment, divestment and other business decisions are directed by a board and management. Neither the President of Singapore nor the Singapore Government is involved”.
Its website says that “as an institution, the company has a stake in the wellbeing of Singapore’s wider community”. It recognises that “environmental, social and governance factors can impact Singapore’s stakeholders, as well as the long-term sustainability of companies and businesses”.
In Bermuda, we also need to capitalise on company ownership opportunities that present themselves in private businesses or in the capital markets locally and overseas.
Our national fund investment entity could also advise the Government on corporate finance challenges where our government has or had skin in the game.
It should be noted here that we started down this road some 65 years ago. We have the Bermuda Public Funds Investment Committee, which has a mildly similar mandate.
This committee was embodied under the Public Funds Act 1954 and is now dated. It needs to be refreshed to reflect Bermuda’s existing economic reality and our fiscal demands and constraints at present.
This committee’s mandate is to provide advice on the management and control of specified public funds, such as government pension plans, GEHI, Confiscated Assets Funds, the Government Superannuation Fund and the Government Borrowing Sinking Fund.
It also oversees other approved securities, be they in publicly held companies or privately held companies. The BPFI committee is appointed and approved by the Governor, and is an advisory body to the Minister of Finance.
Given this framework, and the political whims of Bermuda’s ever-changing governments, the country suffers because it has no long-term strategic plan, or long framework, when it comes to the Government’s investments or ownership stakes in companies.
This situation does not support or recognise that environmental, social and governance factors can impact Bermuda’s stakeholders, as well as the long-term sustainability of local companies and businesses.
This is also imperative in that, as an arm’s length national investment fund, it will provide our government with a single source of expertise. It can also be the space where corporate finance and governance issues are managed and administered.
It will make it easier for our government professionals to work together to deliver value on publicly owned assets in a way that secures positive returns on taxpayer funds. It will also help in the Government’s aim of raising the efficiency and performance in interests in publicly owned companies, private-equity companies and any other investment assets.
Change is required. A national investment fund must be examined for the best interest of the people of Bermuda and their role as shareholders and stakeholders.
• Cole Simons, the MP for Smith’s South (Constituency 8), is writing in his capacity as the Shadow Minister of Economic Development
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