Sunday, January 21, 2018

Very questionable investment by NIB

We have learned from the Sunday Express Express (June 1), that restaurant buildings around the Queen’s Park Savannah have been bought by National Insurance Board (NIB) for $37 million, almost $10 million more than the highest appraisal on record, and that $5 million additionally will be spent. The owners will lease back the buildings for $96,000 and $125,000 per month for two consecutive terms of five years.

NIB seems to believe that it will achieve an investment return of nine per cent because it expects the property to more than double in value by the end of the lease. This estimated return, however, assumes the property will be sold, and ignores the opportunity cost of alternatively investing the funds with the State at, say, three per cent per annum, or lending at short terms in the money market to gilt edge corporations at six per cent per annum or better.

The lease provides initially less than three per cent per annum, at a risk much higher than outlined in the last paragraph. In the event the tenant defaults, remember, the buildings have only have ever been used as restaurants which is what they have been designed for—in a saturated market.

If, say, the Social Security Fund in the US made such a highly questionable investment, an immediate congressional investigation would be demanded. But in this country it will be a nine-day wonder, the board will remain in place, and we may never know what other injudicious investments it makes. Until, that is, the actuaries determine that our contributions have to go up because the projected earnings have fallen short, and the pensioners will have to be happy with no more than their current allotment.

Benedict Anthony

St James