Employees’ Trust Fund assets swell to Rs 464.9bn in 2022

Sri Lanka’s biggest social security net for private sector workers, and public sector workers not eligible for the state pension, the Employees' Trust Fund, gorged itself on unprecedented interest rates on Government securities in 2022 to report Rs 464.99 billion assets, compared with 419.12bn the year before.

The annual report for 2022, presented this week to Parliament, notes a 10.01% return on investment and member funds of Rs 459.63bn.

Factoring in unprecedented interest rates, the Employees Trust Fund Board reported that 2022 core business income increased by 29.76% to Rs 45.67bn.

Interest income increased by 35.84% to Rs 46.31bn, from Rs 34.09bn the year before.

Dividends paid to members was Rs 24.30bn, an increase of 48.48% from 2021.

This windfall for the ETF came at a time of tighter monetary policy and historically high interest rates in the wake of the economic meltdown, while the Central Bank of Sri Lanka’s monetary board, ruling politicians, and ranking officials fiddled. Policy rates were raised by 7 percentage points in April 2022 and again by 100 basis points in July.

Risk premiums on Sri Lanka Government securities shot up as policy rates rocketed. Yields soared until about November 2022. Treasury bill yields (or overall returns relative to price of bonds) of all tenures in the primary market touched 22.30-25.00 before falling to 2.80-3.90 percentage points by endFebruary 2023, data reveal. It was a similar tale for Treasury bonds.

Reporting on the ETF performance, however, the Central Bank of Sri Lanka annual report for 2022, had earlier noted that total assets increased by 11.9% to Rs. 468.8bn as at end 2022. This was provisional data. Investment increased by 4.1% to Rs. 442.5bn and the member balance increased to Rs 422.9bn, CBSL reported. Return on investments was stated at 9.2%.

Managed by political appointees, the ETF’s bread, butter, and jam has always been fixed income, rather than the product of fund management acumen, if any, just like the Employees’ Provident Fund.

The ETF’s portfolio is largely Treasury bonds, making up 89.83%, worth Rs 408.62bn, the annual filing shows. T-bills made up 4.87% worth Rs 22.15bn, and shares made up 2.49% worth Rs 11.33bn. And debentures accounted for 2.05%, worth Rs 9.32bn.

Government securities (T bonds and T bills) combined add up to Rs 430.78bn.

The ETF board reported profit of Rs 36.97bn for 2022, an increase of 29.43% from the 2021. Group trading income was reported as Rs 1.29bn (minus Rs 1.35bn cost of sales).

The ETF booked dividend income of Rs 722.74m from listed shares and Rs 736.91m from unquoted shares.

But, the economic value added, the board reported, was a negative Rs 71.16bn. The opportunity cost of invested capital based on weighted average 12 months’ T bill rate of 24.99% in 2022 versus (6% in 2021).

The fund has a mere 2.44 million active accounts, in contrast to 14.06m that are inactive, the board reported.

This windfall for the ETF came at a time of tighter monetary policy and historically high interest rates in the wake of the economic meltdown, while the Central Bank of Sri Lanka’s monetary board, ruling politicians, and ranking officials fiddled.