BARITA Investments Limited says it is reaping the rewards of its diversification strategy despite facing the prevailing headwinds of increased inflationary pressures and rising interest rates that have unsettled the asset management market.
In a report to shareholders attached to the company's unaudited report for the nine months ended June 30, 2022, Chairman Mark Myers pointed out that the company continues to face the ill-effects of the pandemic that continue to impact the economy, including disruption in global supply chains and associated inflationary pressures. In addition, he noted that the Russia-Ukraine conflict has exacerbated inflationary pressures with the rise in the costs of global commodities such as oil and gas.
Adding "further complication" to the situation, the report outlined, are the slowing down of the US economy, poor economic performance of China, and the impeding recession in Europe. In response, central banks such as the US Federal Reserve, European Central Bank and Bank of Jamaica have hiked policy interest rates with a view to maintaining price stability.
"Therefore, in the context of a sharp rise in interest rate environment and slowing economic activity, asset markets are increasingly reflecting concerns about potential stagflation," Myers pointed out.
Accordingly, Barita's investment strategy "has been characterised…by a focus on the pursuit of differential value through complementing our traditional business lines and exposures with a funding base containing lower-than-typical leverage, and by making strategic allocations to alternative investments," Barita's chairman added.
So far in financial year (FY) 2021/2022, the company has established a premium wealth and corporate solutions unit. The new division will work with Barita's investment banking and asset management teams to develop offerings for the company's corporate and high net worth clients.
Moreover, the company says it has disbursed near $5 billion in private credit investments, which has yielded "equity-type returns and have served as a source of resilience in our overall credit portfolio in the face of rising interest rates.
"Barita has identified several avenues through which the value embedded in these exposures can be realised and…we intend to make some elements of these strategies available to the investing public over time," Myers indicated.
For the nine months, Barita is reporting that it realised 20 per cent gains in net interest income (NII), moving from $1.15 billion in the 2021 corresponding period to $1.39 billion. Additionally, the company says its gains on investment activity jumped 163 per cent, up from $1 billion to $2.65 billion in the period under review.
Myers said that Barita's "focus on growing the group's alternative investments, credit and fixed income portfolios, provided a bulwark for NII, even as repo rates rose". However, given the unpredictability of global inflation and the actions taken by central banks to contain it, he revealed that net investment income will become more challenging to grow.
In terms of the increase in gain on investment activity, the company again credited its improvement to the "addition of alternative investment exposures to our portfolio during preceding quarters" which provided "revenue diversification against the negative effects" associated with the declines in traditional asset classes.
Barita, however, suffered a 66 per cent decline in foreign exchange trading and translation gains due to volatility in that market.
Net operating revenue ended the period at $7.22 billion or 8.0 per cent more than in 2021. Taking into account operating expenses of $2.7 billion — 11 per cent higher than in 2021 — Barita says it recorded operating profit of $4.52 billion.
After adding earnings from associates and deducting taxes, the company reports that its net profit for the nine months ended June 30, 2022 was $3.83 billion. Earnings per share declined to $3.18.
During the period the company says it increased its total assets to $109.93 billion relative to $84.2 billion a year earlier, reflecting a 30 per cent increase. Marketable securities and loan receivables accounted for the largest increases.
Looking ahead, the company says it will maintain focus on increasing liquidity levels, capital management, and sharp execution of key strategic initiatives.