Local firm warns of global recession
A GLOBAL RECESSION is ‘likely’ thanks to Covid-19.
The warning has been issued by Guernsey-incorporated company Pembroke Heritage Fund Ltd in its annual audited financial statements for the year ended 31 December 2019.
The company’s principal investment objective is to take advantage of the value-creating potential of the small and medium-sized enterprises sector in North America to generate attractive returns over the long term.
The financial statements stressed that the term ‘SME’ was not intended to be a closely defined term, with eligibility of an entity or security for the portfolio depending on the assessment of the investment manager.
Investments will be made mainly in corporations with a market capitalisation between $250m. and $2bn and will only be made in corporations with a market capitalisation in excess of $2bn where the investment manager considers the prospects for growth to be exceptional.
The investment manager’s report said that the fund had a ‘satisfactory year’ in 2019 as it rose 21.9% over the period covered in the report to $14.80 (based on mid-market prices) per share. But the investment manager warned that since writing its annual report that ‘market conditions have deteriorated dramatically in response to the Covid-19 pandemic. Stock prices have retreated at a pace rarely seen in history’.
The pandemic was forcing shutdowns and social isolation in many North American cities, with the effect on the economy unknown at this time.
‘A global recession is likely at this time and the duration will depend on how well containment measures work and how slowly business will come back on line as the crisis abates.
‘The portfolio has suffered along with the stock market. Your manager had taken steps over the past year to significantly lower leverage in the portfolio to ensure durability. The high levels of management ownership and strong financial position of the holdings gives us comfort that the investments will rebound when market sentiment improves.’
The financial statements also set how the company’s portfolio is expected, in the normal course, to comprise between 25 and 40 equity holdings, with the 10 largest holdings representing in excess of 40% of net asset value.
