Koror, Palau—On April 14, 2020, the Board of Trustees of the ROP Compact Trust Fund held a Board meeting via internet based application hosted by Investment Consultants Dan Roland and Jason Miyashita. A report from the consultants showed that as of March 31, 2020, the ROP COFA Trust Fund had a total market value of $234,066,171. The trust fund performance report shows a quarter-to-date decline in market value of $53,819,437, or 18.6%, net of fees. These figures illustrate the devastating impact that the global reaction to the coronavirus (COVID-19) pandemic has had on the ROP Compact Trust Fund, as it has had on capital markets, and thus other investment funds, across the world.
To put matters into perspective, in the previous fiscal quarter from October 1 to December 31, 2019, the ROP COFA Trust Fund showed an investment gain of $16,013,648, or 5.99% net of fees. Moreover, an update of the trust fund as of April 9, 2020, shows a gain of approximately $11.8 million or 5.06% since March 31, 2020, demonstrating that there is room for cautious optimism although volatility is still expected in the periods ahead. While reactions from governments and capital markets to the coronavirus pandemic may certainly be unprecedented, historically, markets have recovered from epidemics like SARS, H1N1, and Zika, among others.
Throughout the history of the compact trust fund, different shocks to global capital markets have resulted in what have proven to be temporary setbacks. As examples, in the last two similar periods of equity market declines of 2008 and 2000, the ROP Compact Trust Fund experienced temporary declines of 31.78% and 19.99%, respectively. In looking at the ROP Compact Trust Fund’s growth over time, notwithstanding these temporary periods of decline, since inception in 1994, the fund’s investment gains have totaled $208,105,923 as of March 31, 2020. This represents an average annual rate of return of 6.43%, net of fees, which is above the investment policy minimum target of 6.00%.
The increase in the value of the compact trust fund since inception reflects the strong commitments from the Executive and Legislative Branches to ensure the long-term financial prosperity of Palau. The key is to remain steadfast in our focus on the long-term and have the discipline to stick to the strategy established in our investment policy statement.
In the meantime, the Board of Trustees and investment advisors continue to frequently and closely monitor fund performance. The fund’s investment advisors continue to be proactive in providing the latest information on capital market analyses and economic outlooks to keep the Board up to date and well informed. The Board has worked together with advisors to amend the strategy in policy in a concerted effort to improve performance and select managers that will add value to the fund in the long term. Moreover, the Board has discussed several options with investment advisors in terms of how to preserve fund capital if conditions in the market persist given that a global recession is imminent. These options may include temporary restrictions or reduction in fund withdrawals, strategic rebalancing of the portfolio, renegotiating fees and/or prudent replacement of underperforming managers who have demonstrated inability to provide protection during downturns in the market.
The ROP Compact Trust Fund is a sovereign wealth fund that was created under the Compact of Free Association between Palau and the U.S. The fund’s Investment Advisor, Raymond James & Associates, with its Guam-based Asia Pacific Group serving as lead consultant to the Republic of Palau, is one of the world’s major investment advisory and management firms for small, medium and large institutions.