Guernsey Deputy Jennifer Strachan has called for the States to create a central sovereign wealth fund for all of its investments – totalling just under £2 billion.
She believes it will improve transparency and keep more money on the island, as 95% of the Government’s investments are currently made overseas.
The politician, who also serves as a non-executive director for Barclays Insurance, says a shift in strategy could also be more profitable.
What is a sovereign wealth fund?
A sovereign wealth fund (SWF) is a state-owned investment structure managed by a government to grow wealth.
It is different from other strategies because it pools together different assets, such as cash, pensions, and bonds, and focusses on long-term returns.
Why Guernsey?
Deputy Strachan says that, in Guernsey, a SWF would create a “more holistic way of viewing our investible assets net of liabilities” – in short, allowing investment decisions to be better informed by seeing the whole picture in one place.
Currently, investments can be hard to assess. The State Assembly Scrutiny Committee recently criticised the island’s accounts for being hard to interpret. Deputy Strachan says that a SWF would change that.
What difference would this make to local investment?
A key part of the politician’s plan is increasing the amount of government spending on the island.
She points to the fact that, before a restructuring in 2022, close to 80% of investments were made by local fund managers – which she says earned them roughly £2 million a year.
That year, a new Stated Investment Board (SIB) was established and local investments dropped to 5%.
Deputy Strachan estimates this reduced local fund manager income by £1.15 million.
In her Assembly speech on Tuesday, the Deputy argued that increasing local investment again through a large SWF would give fund managers greater leverage. She also said that it would feed back through in high levels of income tax.
SWFs also often aim to invest these larger sums into local infrastructure projects, with Deputy Strachan suggesting a wind farm project where the income generated is ringfenced for further on-island investment. She points to Norway’s management of oil receipts as an example.
Risk
Deputy Strachan believes that the larger investment pool could also allow fund managers to increase their level of risk and potential returns.
The last three years saw the SIB’s public investments underperform by a cumulative 5%, more than £200 million.
Some might worry the proposed changes would put pensions at risk, but the Deputy says that would not be the case.
She told ITV News that “these are commitments by the States of Guernsey and will be paid by the States of Guernsey”.
Deputy Strachan went on to argue that the island has the reserves to cover pension commitments.
She went on to say that a SWF “would be exactly the type of vehicle that could ensure we have funds today, and are also investing wisely for the future”.
The state of Guernsey’s finances
The latest States of Guernsey accounts show that day-to-day finances are operating at a surplus of £45 million.
However, the Government’s report cautioned that “much of the improvement reflects one-off items rather than a sustained improvement in underlying finances”.
In fact, cash balances have fallen by £9 million and there is an underlying funding gap of £50 million.
Timeline
The Deputy says that she would like to see the plan implemented “as soon as possible”. She requested that the Government launch a six-month review that she will be “following up on”.
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