What Is the Heritage and Stabilization Fund (HSF)?
The Heritage and Stabilization Fund is a sovereign wealth fund that was established in March 2007 by the government of the Republic of Trinidad and Tobago. 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.
What Are Sovereign Wealth Funds (SWFs)?
Understanding the Heritage and Stabilization Fund (HSF)
The Heritage and Stabilization Fund 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 2019, the fund had net assets of $6.3 billion, 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 so as 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."
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 is cumulative annualized return since inception was 5.34%, outperforming the benchmark of 4.87%.
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% cent 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."