Nunavut Trust survives Monday’s market crash
Inuit land claim money invested by the Nunavut Trust is safe, despite Monday’s dramatic stock market crash.
IGLOOLIK Stock exchange tremors that touched off a selling spree on financial markets from Asia to North America put the investment strategy of Nunavut’s Inuit birthright corporation to its first real test this week.
While markets south of the treeline fluctuated from Hong Kong to Toronto, several delegates to Nunavut Tunngavik Inc.’s annual general meeting in Igloolik this week sought reassurance that Inuit investments would be adequately protected.
One delegate, Paul Amagoalik of Resolute Bay, wondered aloud if tumbling stock prices would wipe out those gains, or worse, cost beneficiaries money.
Good returns on investments
But Nunavut Trust chairman Peter Kritaqliluk pointed to the trust fund’s better-than-expected performance in the first six months of 1997 as proof the fund could withstand a short-term downturn.
“Sometimes it goes down, sometimes it goes up. What I can say is our investment return is pretty good this year,” Kritaqliluk said.
“When we first started we were told we could run into this type of situation. Today is a perfect example of what we were taught about. This is one area we were asked to expect in the future.”
Nunavut Trust has purchased more than $285 million in securities since 1993, when it began to manage cash assets paid to Inuit beneficiaries by the federal government under the terms of the Nunavut land claim agreement.
As of June 30, 1997, Nunavut Trust had turned that $285 million into a portfolio worth $347.7 million. Returns in the first half of 1997, in fact, surpassed trustees’ own expectations, “so beneficiaries’ money is doing okay,” Kritaqliluk added.
The health of Nunavut Trust is critically important to NTI, since NTI must adjust its own growth strategy according to the Trust’s ability to finance the corporation’s operations.
Performance outstripping market
The fund’s performance had in fact, been outstripping the market average for the last two years, according to Andrew Campbell, administrative officer and CEO of Nunavut Trust. His report to the delegates showed the fund’s overall performance has been averaging returns of 17.8 per cent, with the strongest gains in Canadian stocks.
Although Campbell downplayed the long-term significance of the week’s volatile trading, he said the week’s events were a milestone for the fund’s six-member board of trustees: it’s the first time they have been confronted with major market downswing.
“We’re going to be in for a very rocky period,” Campbell warned. “But I think that most investors who see their investments as long-term, as we do, view it as a necessary correction.”
Earlier this year, the trustees directed fund managers to invest in assets at a ratio of roughly 55 per cent stocks and 45 per cent bonds, but gave them the flexibility to make adjustments as necessary to deal with market fluctuations.
Moving from stocks to bonds
Most investment counsellors under contract with Nunavut Trust have been moving funds from equities to more stable bonds over the last ten weeks as a hedge, Campbell said.
Only one counsellor jumped the gun, and couldn’t resist selling off riskier stocks last spring, when many market watchers first predicted the market correction would happen.
“As a result, they didn’t lose money, but they didn’t make as much money as they could have,” Campbell said.
The board of trustees is now undertaking a review of investment manager guidelines and will be asked to consider hiring at least two new “specialty” fund managers.
Campbell explained the week’s stock market decline as the result of a currency crisis that began in Taiwan last week and spread to Hong Kong, where the fear of higher interest rates triggered panic selling among some investors.
“I don’t anticipate it will be anywhere as bad as it was in October ’87,” Campbell said, referring to the last time the stock market crashed.
Although NTI must continue to borrow money from the Trust to operate, it’s expected that net income from investments will be enough to cover all of NTI’s expenses by the year 2001.