IT WILL take amendments to the law, a lengthy and sometimes complicated process requiring the input of several organs of government, but the Financial Services Commission (FSC), using racing analogy, told securities dealers this week that the process of reviving the unit trust market was heading to the finish line.

The resuscitation has turned out to be more of an extended marathon than a long-distance race, Jamaica having put a lock on the unit trust market since 1998 when a moratorium on new products was instituted to restructure the sector, leaving four players.

But FSC director Rohan Barnett said Wednesday that the legal amendments to the Unit Trust Act and regulations have now been drafted by the Chief Parliamentary Council (CPC).

Revisions

That draft has come after years of consultations and, while the specific amendments were not disclosed, a paper done by the FSC in September 2006 lays out 17 revisions across 19 pages, laying out the process for licensing and registration, capital requirements of more than $100 million or more than $200 million depending on the circumstances, the valuation of the units, and reporting requirements, among other things.

Barnett said that two rounds of reviews of the draft amendment legislation have already taken place since the end of March.

Once the responsible minister - in this case Audley Shaw - is satisfied with the draft, the matter goes to Cabinet for review. The next step, after executive approval, is Parliament for debate and passage.

Finish line ahead

"Unit trusts will become more available to the investing public," said Barnett, at a luncheon meeting with Jamaica Securities Dealers Association members Wednesday.

"While it is not a short process, we are well along the road to the finish line," said Barnett.

He did not, however, attempt to define just how far away the finish line was.

The unit trust market, perhaps because of its regulator-imposed dormancy, is worth a fraction of the total securities market; and in the past year has lost even more of its glory.

At the end of December 2008, unit trust funds under management, FUMs, totalled $11.9 billion, down from $16.9 billion in 2007, a 29 per cent decline that the FSC said was due to the current global financial crisis, general performance of the financial market, and net redemption of accounts.

The broader securities market by contrast had FUMs of $768 billion at December 2008, up by almost seven per cent from $720 billion in June 2008.

The four managers of unit trust funds, Pan Caribbean Asset Management (PCAM), Barita Unit Trust, Scotia DBG Fund Managers and Capital and Credit Fund Managers, offer 10 products between them.

The products

Four of those products are reporting negative growth at the end of May - Barita's capital growth fund which is down 15.6 per cent; Capital and Credit's income and growth fund, down by 25.2 per cent; Scotia's DB&G premium growth fund, down 27.8 per cent, and PCAM's Sigma Optima, down 27.98 per cent.

The other seven funds are reporting growth ranging from 11.2 per cent to 22.7 per cent.

The yields were also up on all 10 funds, ranging from 4.25 per cent on Scotia's premium growth product to 20 per cent on Capital and Credit's giltedge fund.

Unit trusts are normally long-term investments, seen as safer havens for smaller investors who tamp down on their exposure to risk by pooling their funds.

Jamaica's unit trusts are invested in equities, fixed income securities, and real estate.

Pushing for reopening

PCAM at the end of 2007 had claimed 41 per cent of the unittrust market, with its three Sigma products.

The FSC is now pushing for the unit trust market to reopen because of its concern that brokerages are too heavily invested in one product, skewing their balance sheets towards repurchase agreements.

The regulator wants securities companies to diversify their product base, and is looking beyond unit trusts to give the market alternatives.

Collective schemes

Barnett said that while the unit trust law was the immediate step to facilitate specific market demand, a broader reform of collective investment schemes (CIS) is being contemplated.

Unit trusts by virtue of being a pooled fund run by a professional manager falls into the category of collective schemes.

Barnett urged securities dealers again this week to "diversify their product base so as to continue to guarantee income growth and preserve the stability and integrity of the financial system".

He said too that the registration of unit trusts was "imminent".

Move to resolve obstacles

The CIS reform process includes a move toward resolution of obstacles in company law to the establishment of local mutual funds, the revision to the mutual fund regulations to accommodate a wider variety of collective investment vehicles, the potential revival of corporate bonds, and the development of regulations governing pooled fund products, which are not geared to the average retail investor.

Last year, before Barnett left New York for Kingston to take up the vacancy in the top job at the FSC, the regulatory agency took steps to open up the private placement market targeted at high net worth investors willing to put money into more risky investments.

sabrina.gordon@gleanerjm.com