Ewart Williams Believes in Sovereign Fund Efficiencies

From aiCIO Magazine's February Issue: Ewart Williams, Director of Investments at the Heritage and Stabilization Fund, Trinidad and ­Tobago, runs the Caribbean nation’s Sovereign Wealth Fund (SWF) in addition to being governor of its central bank.

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“Trinidad and Tobago had two episodes of high oil prices in the 1970s and early 1990s, and on both occasions there was the view that the proceeds were not efficiently used. There was a significant increase in government expenditure and all the classic indicators of Dutch Disease. Therefore, we went through a significant recession in the late 1980s when oil prices declined. Therefore, a commitment was made by the government that whenever prices were high we would not fritter away the resources as we did in the initial oil booms.  

The administration that came to power in 1996 started to put away small amounts of money from the oil resources. At the time it was called the Interim Revenue Stabilization Fund and it started with $66 million. The formal Revenue Stabilization Fund was approved by Parliament in 2007. In 2000 the fund was under $100 million. Today it stands at about $4 billion. There are several projections about how much the fund will increase. These projections are based on assumptions about the size of the oil reserves, projections about oil prices, and decisions the government makes about maintaining or changing the savings rules. The government would hope that over time you would have something substantial, and we’re aiming at at least $10 billion over the next 15 years or so.

If anything, my 30 year career at the IMF helped me in getting the fund established. If there is one thing I learned during that time, it is that having natural resources is by no means a guarantee that the funds derived will be used efficiently for the development of the country. In the IMF I saw many cases of countries that had natural resources but didn’t use the funds efficiently. Therefore, that experience prompted me to become the advocate for the creation of the fund. My career at the IMF also helped me establish the kind of contacts with the IMF and the World Bank such that we received significant help in the establishment of the fund, especially with the strategic asset allocation.

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The Heritage and Stabilization Fund legislation requires that the Central Bank be represented on the board, and I am the Central Bank representative. The Heritage and Stabilization Fund Act specifies that the Central Bank should be the investment manager of the fund. It also provides for the Central Bank to outsource some or all of the investment to external managers. So we are the investment manager, although we have outsourced the entire management function to external managers. 

We have a department that conducts a fairly rigorous and robust review, including almost daily contacts with the four or five investment managers we have. In addition, we have scheduled reviews—monthly reporting arrangements between the external managers, the custodian, and the bank. It’s a pretty rigid and robust arrangement.

The Central Bank is also responsible for investing the country’s reserves. We have reserves of approximately $9 billion. But that operation is separate and distinct from the management of the Heritage and Stabilization Fund. We have an entirely different strategic asset allocation and the two are kept totally separate. The Heritage and Stabilization Fund legislation requires that the Central Bank provide quarterly reports to the board of the Fund; we report to them, they report to the Minister of Finance, and he reports to Parliament.

Yes, Trinidad and Tobago was one of the founding members of the Sovereign Wealth Fund Group initiative and I was part of that group. The SWF Group has done a very good job in trying to introduce certain minimum standards of transparency in sovereign wealth funds. One has to avoid the prospect that we end up with the least common denominator on issues such as transparency and disclosure. It is important that the group establishes itself and gains credibility so its various members will buy into the Santiago Principles.”