Marshall Islands' Compact Trust Fund loses $US18m in late 2018

12:23 pm on 7 January 2019

The Marshall Islands government's Compact Trust Fund has lost $US17.9 million dollars - 4.5 percent of the value of the total fund - during October and November.

Marshall Islands parliament

Marshall Islands parliament building Photo: Supplied

But that loss was mitigated in large part by the annual contribution of the United States government to the Compact Trust Fund - which this past October amounted to $17.7 million.

This put the trust fund value at $US401,503,341 as of 30 November. This was about $US250,000 less than the ending value of the Compact Trust Fund 30 September.

The aim of the Compact Trust Fund is to provide adequate funding to support government operations after the major portion of US grant funding expires in the 2023 financial year.

Trust fund figures for December were not available, but losses were expected to be substantial as global markets continued their decline last month.

The US investment company Raymond James, which handles investments around the Pacific region including in the Marshall Islands, in a late December update on investment developments, described losses on the stock market as "December's market meltdown".

The late 2018 losses contrast dramatically with investment performance the past three years. The Compact Trust Fund has seen strong earnings over the past three years until the market downturn in October.

FY2016 saw a 10.37 percent rate of growth, while FY2017 increased by 14.09 percent. The growth rate for FY2018, through September 30, was 7.01 percent.

Investment managers said that diversification of investments in stocks, bonds and other investments has been a successful strategy.

"A globally diversified portfolio has helped smooth the Fund's performance over the years compared to a 100 percent stock portfolio," said a release from the trust fund management.

Despite the recent losses, fund managers are staying their investment course.

"The Fund's investment horizon is long-term with the objective to maximize investment returns and assets in the Fund through the period ending FY2023," said trust fund management.

"That warrants maintaining the portfolio's exposure to equities even if they result in more portfolio volatility in the short-term."

In addition to the Compact Trust Fund, many other entities in the Marshall Islands have seen their investment value shrink the past three months, including the Marshall Islands Social Security Administration, four nuclear test-affected atolls of Bikini, Enewetak, Rongelap and Utrok that maintain trust funds, and the College of the Marshall Islands' endowment fund.

The Compact Trust Fund was established by the terms of the Compact of Free Association between the US and the Marshall Islands.

It was initially invested in 2006. Most of the funds invested have been provided by the US. Under the terms of the Compact, US grants decline by $US500,000 annually and the US contribution to the trust fund increases by the same amount with an inflation adjustment.

The US will invest over $US70 million in the trust fund during the last four years of the 20-year financial package of the Compact of Free Association that ends in FY2023.

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