US office urges review of Marshall Islands, Micronesia trust fund strategies

Why has the Palau’s government trust fund produced better returns than both the Marshall Islands and FSM national trust funds over the past nine years?

This is a question the latest economic review of the Marshall Islands and Federated States of Micronesia, issued last week, suggests should be asked by officials from these two north Pacific nations.

The Graduate School USA, which produces annual economic reports on these three U.S.-affiliated nations, includes an assessment in the reports of the U.S.-funded national trust funds now being capitalized to provide a funding source to the island governments when U.S grant funding ends after 2023.

While investments for both the Marshall Islands and FSM trust funds have performed capably, their performance has not matched Palau’s. The Graduate School USA’s FY2014 Economic Report for Marshall Islands compared the performance of trust funds for Marshall Islands, FSM and Palau for the period 2006-2014. It shows the Marshall Islands’ trust fund investments produced an annual rate of return of 6.49 percent, the FSM generated 6.74 percent and Palau 8 percent.

“It may be useful for the responsible officials to add to their ongoing, rigorous oversight and due diligence processes, an assessment of lessons learned in relation to assert allocation, investment and administrative costs, and other actors of relevance,” said the Graduate School USA report. “The Palau results are markedly better than those achieved by the FSM and Marshall Islands, while maintaining a less complex asset allocation strategy.”

The report points out that other periods of comparison would produce different comparative results. “Still, it is worth recognizing that if the Marshall Islands Compact Trust Fund had been invested with the same allocations and cost structure as that of the Republic of Palau Compact Trust Fund, the extra 1.51 percent of actual computed annual return would have resulted in an end of FY2014 (Sept. 30, 2014) Compact Trust Fund value of US$262 million instead of the achieved value of US$240 million.”

By June 30 this year, the Marshall Islands stock market investments had reached a value of US$264.7 million — though have recently declined by as much as 10 percent because of the heavy losses on the U.S. and global stock markets since August. The Federated States of Micronesia’s trust fund stood at US$422 million on June 30, according to the latest financial data available.