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May 28th, 2015

Chairman’s address at 33rd Annual General Meeting

 

ADDRESS BY THE CHAIRMAN
WENDELL MOTTLEY ON THE OCCASION OF
THE TRINIDAD AND TOBAGO UNIT TRUST CORPORATION’S
33RD ANNUAL GENERAL MEETING
HELD ON MAY 27TH, 2015
AT DAAGAAUDITORIUM UWI,ST. AUGUSTINE

Thank you Master of Ceremony. Mr. Ian Chinapoo, Executive Director of the Unit Trust Corporation, fellow Directors of the Trust, Representative of the Auditor General, Specially invited guests, Members of my Executive Team, Management and Staff of the Corporation, Unitholders, Representatives of the print and electronic media, ladies and gentlemen.

After two eventful years at the helm of the Trinidad & Tobago Unit Trust Corporation and overseeing its eminent transformation, the mission set for me has been completed. It is now time to pass the baton. I will soon be retiring as Chairman. Rest assured, the Corporation now sits on a resilient foundation of sound finances, visionary leadership and strong governance structures which I confidently believe will redound to the benefit of unit holders. As the saying goes, “time flies when you are having fun” and indeed the time spent at the Corporation passed quickly and I thoroughly treasured every minute of steering the proverbial ship. But my most profound rewards came from serving you, our valued unit holders.

If I were asked to reflect on which was my defining contribution in serving you during my stewardship, I would unequivocally point to the recruiting and retention of one of the finest teams of investment professionals in the financial services industry and then, with the support and guidance of a very fine Board of Directors, in steering this team in the process of good governance. So that today the UTC is the employer of choice in the industry.

Over the past couple of years, the UTC tirelessly sought to bring discipline to our operations and so preserve value for our unit holders. That required making some tough decisions.

We disciplined our processes for taking write downs and as such, have proactively made provisions for impairments over the last two years. Simultaneously, we overhauled our investment decision making processes. Consequently, I am confident that we now have a whistle clean balance sheet. With recent developments at Trinidad Cement Limited I anticipate we may even enjoy some write backs.

In 2013, we closed a number of non-performing funds. We also created our newest fund – the UTC Corporate Fund (UCF) in 2014. This fund was borne out of the need to provide an investment opportunity to investors with excess liquidity, a challenge that has plagued the domestic financial system for the past couple of years.

Aligned with our commitment to provide you, our unit holders, with competitive returns on your investments, the Corporation took a proactive stance and leadership role to strengthen its investment portfolio. As such, we entered into a strategic partnership with the National Insurance Board (NIBTT) and National Enterprises Ltd (NEL) and acquired a 10% stake in Phoenix Park Gas Processors Ltd for US$168 million. The rewards of this investment will redound to the benefit of our unit holders for many years to come.

Global Economic Review

2014 proved to be quite challenging on many fronts. The year was characterized by a sharp rise in geopolitical risk. I highlight the global threat of the terrorist group ISIS – Islamic State in Iraq/Syria, the civil conflict in the Ukraine and Russia’s annexation of Crimea that resulted in the subsequent wave of sanctions imposed by the international community.

The economic recovery was also uneven, resulting in a divergence in monetary policy by the major central banks. In the United States, in response to accelerating growth, the Federal Reserve ended its Quantitative Easing (QE) programme and signaled monetary tightening in 2015. In contrast, both the European Central Bank (ECB) and the Bank of Japan loosened their monetary policy, with the ECB ending the year by signaling to markets, its intention to reconsider purchasing sovereign debt. In January 2015, the ECB agreed to buy 60 billion euros ($68.4 billion) a month in government and private-sector bonds.

The Corporation’s funds benefitted from the rally in US equities, with the North American Fund being the star performer in 2014, with a return of 8.58 percent.

As the European Central Bank emulates successful US Federal Policies, markets are anticipating a surge in European equity performance in 2015. The UTC is positioning its global investments accordingly.

By far, the most important global development of 2014 was the rapid decline in oil prices. Oil traded as high as US$105.38 per barrel at the end of June 2014. Thereafter, oil prices plummeted to US$53.27 by the end of the year. This collapse was due to a combination of factors including weakened demand from China and increased oil supply from the US as a result of the shale revolution. In these circumstances, Saudi Arabia led OPEC in determining that it would not lose market share to the US in particular and allowed the price to plummet to drive down production from higher cost producers, such as the US. The consensus among energy experts is that this market shake out will last approximately two years. Overall, oil prices fell by US$45.15 or 45.9% in 2014 from its closing price of US$98.42 on December 31 2013.

Trinidad & Tobago Economy

Because of a fiscal year ending in September 2014, the domestic economy did not immediately reflect the negative repercussions of the lower oil and gas prices. As such, economic activity in Trinidad & Tobago rebounded in the third quarter of 2014 due to a pickup in production in the energy sector. After a period offlat growth for the first half of 2014, provisional estimates indicated that the economy expanded by 1.9% year on year in the third quarter. Higher levels of production were recorded in natural gas and petrochemicals, after a period of contraction, while refining and exploration & production activity rose in the third quarter of 2014. Much of the resurgence was attributed to the completion of large-scale maintenance activity undertaken by the major gas producing companies in the first half of the year. Still, curtailments of gas supplies to petrochemical producers continued, though at lower levels.

Citizens of Trinidad & Tobago were faced with a new challenge in 2014 – supply shocks in the foreign exchange market for US currency. During the year, forex demand consistently exceeded supply. This led to queuing, relieved temporarily by supply from the Central Bank of Trinidad and Tobago.

Consequently, many persons and companies, including us at the Corporation, were challenged in obtaining US dollars in 2014.

The domestic financial landscape continued to face high liquidity levels as the commercial banks’ excess reserves averaged TT$6.8 billion throughout the year. Being the largest mutual fund player in the financial services industry, the UTC was not spared and we actively sought to manage our elevated liquidity levels. In this environment, continuing downward pressure was exerted on interest rates.

The persistent low interest rate environment negatively impacted the fixed income market as yields remained suppressed. The domestic stock market was also challenged to offer value. For the year, the Trinidad & Tobago Composite Index fell by 2.88%, compared to returns of 11.37% achieved in 2013. These two adverse and continuing developments in both the fixed income and equity markets have unfavourably impacted your distributions.

Unit Trust Corporation

Amidst the gales of such volatility and uncertainty, the Unit Trust Corporation remained well anchored and never lost its disciplined focused approach to investing your money. Because that is what is required to be a beacon of Safety, Strength and Stability for you, our clients.

We continue to assiduously work to promote financial reform and transparency in every area of operations. Supported by a rigorous corporate governance structure and prudent management practices, UTC’s leadership team have managed and continue to manage the Corporation’s day to day business with a long-term view and to exercise fiscal prudence.

Our staff remain a key driver to the Corporation’s success, as they are instrumental in meeting your ever-changing needs and providing solutions to complex problems against the backdrop of a rapidly changing world. We have sought to align their reward with UTC corporate success by reintroducing pay for performance incentives.

Given the dearth of domestic investment opportunities, the Corporation has taken a proactive stance and leadership role to strengthen its investment portfolio, and by extension investment returns by establishing partnerships with key players in the financial services industry. As mentioned earlier, the collaborative effort of our Investment team on the Phoenix Park Gas Processors Limited instrument has already borne fruit, having received our first dividend payment within weeks of our investment. Plans are currently underway to participate in other domestic energy sector deals in the near future.

With roughly 45% of market share in the domestic mutual fund industry, the Unit Trust Corporation has a fiduciary responsibility, not only to you, our clients, but to the wider society of Trinidad & Tobago.

In 2014 the Corporation was declared to be a Systemically Important Financial Institution (SIFI) and consequently to be regulated by the Central Bank of Trinidad and Tobago and the Securities and Exchange Commission. Your Board and Management work seamlessly and cooperatively with our regulators to ensure that the Corporation is in compliance with the strictest standards of corporate governance. We are committed to building better financial futures, not just for yourselves, but for your grandchildren and great grandchildren. It is the Corporation’s mandate to help you build your long term financial security. As such, it is cardinal that we strive to protect you, our clients, from the myriad of downside risks in the domestic and global financial universe and simultaneously grow your returns responsibly.

We will continue to establish and position ourselves to capitalize on the constant changing investment universe. Echoing our watchwords – Safety, Strength and Stability – we pledge to you, our clients that the Corporation remains committed in providing you with competitive returns, superior customer services and enhanced investment solutions.

When I look back at where we started more than thirty years ago, our only mandate was to allow the average person in Trinidad and Tobago to become a part-owner of some of the most productive assets in the country; those companies that were listed on the Stock Exchange – what the then Prime Minister described as “the Commanding Heights of the Economy”.

In 1982, when the UTC started, we had nothing more than that vision, and the passion to make that vision a reality. At that time, there were 32 companies listed on the stock exchange and the total value of their shares or the market capitalisation was TT$2.8 billion.

Today, there are 36 traded companies and the market capitalization is now $110 billion. We feel proud that we have been able to allow our unitholders to share in that growth over the last 33 years.

In spite of that, we are very conscious that our mandate is still a work in progress. I lament that we may have not fully discharged our mission for encouraging long term investment. The UTC’s objective has always been to allow our unitholders to participate in the long term productive assets of this country and are very much aware that those assets are represented by the shares in companies across all sectors of this economy.

We have recognized that we need to appease your long term investment needs. Our mission has always beento increase the portion of that TT$110 billion of the productive long term assets that you, our unitholders, now own. As it now stands, our balanced funds where we hold company shares – the Growth and Income Fund and the Universal Retirement Fund- hold total investments of TT$5.0 billion out of our total Funds Under Management of TT$19.8 billion. Only a quarter of our Funds Under Management have the exposure to the local stock exchange and the actual investment in those shares represents less than 2% of the total market capitalisation.

The truth is that that there are several reasons why it is difficult to access shares locally, including:

  1. Many of the locally owned companies are owned by large groups and families and those shares are not available to the wider market;
  2. The infrequency of sales in the local market means that when large institutions like insurance companies and pension funds buy shares, they tend to buy and hold so that those shares are usually no longer available for trading; and
  3. There are very few new companies that list on the stock exchange in any given year.

The combination of these factors do present challenges for us to access the long term assets that should be a growing part of our unitholders’ portfolios. If you add to that the fact, that as of now, there are no major shares from the energy sector listed on our stock exchange you will understand why we believe there is more for us to strive for in meeting our overall mandate.

I want to give you my personal assurance that this is very much in our consciousness and on the agenda for the Corporation. In the last year, our partnership with the National Insurance Board and National Enterprises Limited to purchase shares in PPGPL is proof of our commitment to wider participation in the critically important energy sector. In the coming months, you will see some of the new products and strategic partnerships that we will bring to the market to give you increased access and ownership in these types ofassets.

Even so, a significant part of us fulfilling our mandate depends on you, the unitholders. We are relying on you to display a willingness to take the long term view of investing that will be crucial to the ultimate success of the Corporation, in giving you ownership of the most productive local assets.

We are aware of the relatively higher risks associated with ownership of shares and long term assets, but we are also aware of the rewards associated with that, not least of which, is the return associated with ownership of those long term assets. From inception, our flagship balanced fund, the Growth and Income Fund, has generated returns of 900%. So a unitholder who invested $10,000 back when the UTC started in 1982 would now be holding an investment worth more than$102,000!

We are very excited about the prospects for the future, enhancing and securing your wealthby harnessing our talent and your commitment to investingwith us for the long term.

I would like to express my gratitude to the Central Bank of Trinidad & Tobago and the Minister of Finance and the Economy for giving me the opportunity to serve this noble institution – an institution so rich in history and ingrained in Trinidad & Tobago’s society.

I would also like to acknowledge the regulators – the Central Bank of Trinidad & Tobago and the Securities and Exchange Commission who are making notable strides to regularize the financial services industry and safeguard the assets of all investors, those current and future generations to come. We, at the UTC fully endorse this new thrust by the regulatory authorities and are willing and committed to play our part as a Pioneer of Change, instilling and promoting market confidence and stability in our domestic financial industry.

I would like to thank the Members of the Board of Directors, the Executive Management Team and staff for their hard work and dedication. It has been a privilege to serve as Chairman for the past two and a half years. I leave you with the assurance that the state of your Corporation, the UTC, is strong… indeed it has never been better.