What Is the Heritage and Stabilization Fund (HSF)?
The Heritage and Stabilization Fund is a sovereign wealth fund established in March 2007 by the Republic of Trinidad and Tobago government. It was previously known as the Interim Revenue Stabilization Fund, which was set up in 2000.
The primary objectives of the fund are to save and invest surplus petroleum production revenues to support and sustain public expenditures during periods of revenue downturn and to provide a heritage for future generations of the nation.
- The Heritage and Stabilization Fund is Trinidad and Tobago's sovereign fund, used to maintain the countries' heritage and provide a buffer during economic downturns.
- The fund was created with The Heritage and Stabilization Act, No. 6 of 2007.
- The HSF had a Net Asset Value in June 2022 of $4.7 billion (according to the latest available quarterly report).
What Are Sovereign Wealth Funds (SWFs)?
Understanding the Heritage and Stabilization Fund (HSF)
The Heritage and Stabilization Fund was created in The Heritage and Stabilization Act, No. 6 of 2007. It is denominated in U.S. dollars, and its fiscal year ends in September. The fund provides a cushion to the economy of the islands in times when the price of oil or natural gas has fallen.
By the end of 2022, the fund had net assets of $4.6 billion (down from $5.5 billion in 2021), compared with a value of $1.4 billion in 2007.
Rules of the Fund
According to its governing legislation, the fund is intended to "(a) Cushion the impact on or sustain public expenditure capacity during periods of revenue downturn whether caused by a fall in prices of crude oil or natural gas; (b) Generate an alternate stream of income to support public expenditure capacity as a result of revenue downturn caused by the depletion of non-renewal petroleum resources; and (c) Provide a heritage for future generations of citizens of Trinidad and Tobago from savings and investment income derived from the excess petroleum revenues."
Under the legislation that established the fund, withdrawals are "limited to 60% of the amount of the shortfall of petroleum revenues for the relevant year; or 25% of the balance of the Fund at the beginning of that year, whichever is the lesser amount. The Act precludes any withdrawal where the balance standing to the credit of the Fund would fall below one billion US dollars if such withdrawal were to be made."
Withdrawals are allowed "Where the petroleum revenues collected in any financial year fall below the estimated petroleum revenues for that financial year by at least 10%, withdrawals may be made from the Fund."
Recent Fund History
Following a sharp drop in energy prices in 2015, the fund reported that it withdrew approximately $375 million to contribute to its annual budget. This was the first such net withdrawal since the fund's inception. In its 2016 annual report, the fund stated that its cumulative annualized return since inception was 5.34%, outperforming the benchmark of 4.87%.
In the 2020/2021 fiscal year, the fund had a net asset value of $5.47 billion following $2.5 billion in withdrawals intended to "ease the hardships faced by the most affected sections of the population and by small and medium-sized businesses."
In June 2022, the fund's net asset value shrank to $4.7 billion, half a million lower than its NAV at the end of the first quarter of that year.
What Is a Sovereign Wealth Fund?
A sovereign wealth fund can take many forms, but generally, it is an investment instrument created by a government or entity for social programs, emergency events, political purposes, or other uses.
What Does Stabilization Fund Mean?
A stabilization fund is an instrument created by a government that holds funds for the purpose of stabilizing an economy.
What Is a Heritage Fund?
A heritage fund is a financial instrument designed by a government or other entity intending to use the funds for specific purposes. There are various uses for heritage funds, some of which include improving or maintaining historical areas and property and providing educational assistance for or supporting the efforts of specific groups of people.
The Bottom Line
The Heritage and Stabilization Fund was created by The Heritage and Stabilization Act of 2007 in Trinidad and Tobago. It was intended to hold and invest surplus petroleum revenues to act as a financial buffer during financial downturns and provide an alternate funding method for public expenditures.