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Financial News

Jan 2009 Financial News

First Global suspends Cayman fund

Jan 23, 2009

Coming on the heels of stated plans to restructure its operations in light of deteriorating global financial markets, GraceKennedy's wealth management outfit, has put the brakes on trading activity in its Caribbean bond fund, the six-year-old Cayman-based mutual fund of just under US$ 9 million, predominantly invested in Caribbean governments' sovereign bonds.

Fund manager, Robert Drummond, president of First Global Financial Services (FGFS), says no decision has been taken to wind up the operation.

But in a bid to stave off any erosion in the portfolio's assets and safeguard the money of investors, trading in the fund was suspended earlier this month.

Drummond, who is also chief executive officer of FG Funds Management (Cayman) Limited, said that with just 110 shareholders, the fund is not broad-based and that its US$8.9 million in portfolio assets matches up perfectly with its obligations to shareholders.

"We have no difficulty in realising shareholders' interest in the fund, which has performed well up to last year," he told the Financial Gleaner.

At a time when bond prices have plummeted and some mutual funds have taken a hit of up to 50 per cent drop in value, at the last calculation on December 24, investors in FG's Caribbean Bond Fund were reaping a 1.41 per cent per year return on their investment at a net asset value of US$10.85.

Full disclosures made

In a notice to shareholders dated January 8, FG Funds advised its investors that, "Calculation of net asset values and, therefore, trading in (investment in and redemptions from) the fund would be suspended as at January 9, until further notice."

According to Drummond, full disclosures have been made to the Cayman Islands regulatory authorities, the Financial Services Commission and the Bank of Jamaica here, as well as to the regulatory bodies in all countries in which it has investors.

Investors are said to be mainly from Jamaica, Barbados and Trinidad and Tobago.

The FG Caribbean Fund lists among its current assets, several government and corporate bonds with redemption dates up to 2027.

These include Government of Jamaica 2014, Government of Dominica 2027, Government of St Vincent and the Grenadines 2011, Air Jamaica 2015, Cool Petroleum 2016, AIC Barbados 2009, Digicel 2015, as well as corporate paper from TransJamaican Highway, AES Energy of the Dominican Republic, CL Spirits and Itabo Finance, the redemption timelines of which were not immediately available.

The company has been in direct contact by email and telephone with all investors, to allay any fears and provide timely information and update, Drummond said.

FG's Caribbean Bond Fund is said to have performed very well in the early years, reaching its zenith in around 2005.

While the bond fund has been spared the peaks and troughs seen in stock fund performance in recent times, several shocks to the international financial system, notably the collapse of investment bank, Lehman Brother in September last year, dealt a severe blow to confidence in the bond market with prices plummeting to all-time lows.

No exposure

The value of FG's mutual fund portfolio is believed to have held up well with no exposure to US toxic investments as a result of its concentration on sovereign and government-backed bonds as well as high quality regional corporate paper.

However, a steady trek of investors from the bond market caused total investment in the Caribbean bond fund to dip some 19 per cent last year forcing its mangers to this month apply the brakes on new entrants and immediate redemptions.

The managers of the fund have in recent times been moving strategically to shorter term instruments with little market fluctuations to realise existing assets and enhance the liquidity of the fund.

However, with bond prices having fallen to what is being regarded as unrealistic lows, FG is of the view that remaining investors would be at a disadvantage should trading continue in the prevailing environment.

"The decision to suspend trading was taken by the directors of the fund because of the volatility of the regional market investment prices which is a direct result of the global market volatility and recession and the difficulty of realising underlying securities in such circumstances," reads an investor notice, posted to the FG Fund website earlier this month.

That notice further points out that given the volatility, FG Funds Management
Cayman Limited, as manager of the fund, was of the view that it is most prudent to cease trading in the fund at this time.

"It is the fund manager's objective to put the fund in a position in which it can make orderly payments to investors without exposing them to further risks," the notice read.

Huntley Medley, Contributing Editor - Business
Jamaica Gleaner
Friday January 23, 2009