JAMAICA National Fund Managers' (JNFM's) rapid growth in recent years prompted its parent — Jamaica National Building Society (JNBS) — to pump $300 million capital into the firm, says JNFM general manager Keith Senior.

With the injection, Senior said, the company will increase its capacity to support "phenomenal" growth in assets under management, which at the end of the recent financial year stood at $22.3 billion, a 26 per cent increase over year-earlier levels and more than double the $9 billion the company managed five years ago.

"The growth has been phenomenal... to support that growth at that pace, you either need to be growing your after-tax profit significantly or you go to your shareholders and get additional capital," said Senior, noting: "That is one of the considerations."

JNFM reported net profit of $358.1 million for the financial year ending March 31, 2010, a 50 per cent increase over the year prior.

Profit growth helped increase the firm's capital base by 58.7 per cent to $1.4 billion over the last two years, but the brokerage house's capital-to-asset ratio — a measure of capital adequacy — fell from year-earlier levels by 0.13 percentage points to 6.17 per cent at the end of March 2010 and close to the six per cent benchmark set by the regulator -- the Financial Services Commission (FSC). The $300 million of additional ordinary shares issued to JNBS increased the ratio to 7.5 per cent.

Senior insists that the move to provide the company with additional capital was not a measure to give more breathing room to a capital base that was just above the FSC minimum benchmark.

"The fact of the matter is the benchmark is six per cent and we could've kept it and be fully compliant and grow at the same pace," Senior emphasised. "What we wanted to do is provide additional capital so if we needed to grow substantially, it wouldn't have been an impediment...It had nothing to do with insolvency."

The FSC and the Bank of Jamaica (BOJ), the main regulators of the financial services sector, plan to develop enhanced capital and margin requirements for securities dealers, as recommended by the International Monetary Fund.

One such plan is the phased introduction of 100 per cent risk weighting on foreign currency-denominated GOJ bonds, due for completion next year.

"Even when it's fully phased in, we're going to be fully compliant. We've already done the stress test and if it were to be 100 per cent today, we'd be fully compliant," noted Senior.

At the end of March 2010, JNFM held just over $500 million in US$ GOJ Global Bonds. Previously, domestic firms were not required to have the capital that covers the risk associated with foreign currency-denominated GOJ bonds.

Meanwhile, Senior boasts that JNFM has an efficiency ratio — calculating operating expenses to revenues — of 26.27 per cent, which he claims to be "one of the best in Jamaica".

JNFM is a licensed securities dealer which began operations in 2000. The company is involved in investment portfolio planning services, mutual fund products, pension administration and management services, the purchase and sale of government bonds and equities and credit facilities.

The company's after-tax return on equity was 32.32 per cent at the end of the period under review compared to 27.61 per cent at the corresponding period last year.

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