VM Investments Limited (VMIL) is betting big on asset management and process automation as the two pillars that will allow the business to grow into a larger investment player in the Caribbean.
VMIL had a difficult 2023 as its net interest income and other operating revenue decreased 19 per cent from $2.34 billion to $1.88 billion as a reduction in capital market activity, fair value losses, impairment losses, and higher interest expense impacted the group. This translated to VMIL’s consolidated net profit facing a 72 per cent compression from $716.59 million to $198.84 million.
Despite the hurdle faced from a tough 2023, VMIL Chief Executive Officer Rezworth Burchenson is looking ahead to a future in which he transforms the business even further. This strategy has begun to be realised, as it finally acquired Republic Funds (Barbados) Incorporated (now VM Wealth Funds Limited) on January 19, the first move in building out a strong regional asset management platform.
“Our view is that Barbados is going to be our spearhead into the southern Caribbean. We believe that the competence we have in Jamaica can be replicated to bring that platform out into the southern Caribbean. It gives us exposure to potential opportunities in Trinidad, Guyana, Suriname, and some of the smaller territories. Asset management is going to be a key pillar of the business going forward and we want to be one of the top-performing asset managers in the medium term,” Burchenson said in his remarks on Tuesday.
VMIL and its subsidiary had $58.39 billion in assets under management (AUM) at the end of 2023, which covered areas such as its unit trust portfolio and other managed funds. Its entry into Barbados is set to fuel the growth in AUM as it seeks to also increase its exposure to private equity opportunities and grow alongside budding and established entrepreneurs looking to go to the next level.
Burchenson noted that the team is currently integrating systems with VM Wealth Funds team in Barbados while they look to approach the local securities regulator on potential projects it plans to execute in the near term. This regional asset management strategy will be driven by deputy CEO Brian Frazer who spent two decades with Scotiabank across the Caribbean.
While the team looks to that expansion strategy, the Jamaican team will focus on adding more technological solutions to automate different processes. According to Allison Mais, vice-president – operations at VM Wealth, there are 10 initiatives to automate processes that are currently being done manually. This is also being complemented by 80 per cent of its clients accepting technology to make their lives easier and give them comfort in having access to their portfolio information at their fingertips.
“This business is a people business. However, we do have to attract and retain talented personnel. However, there are lots of opportunities by leveraging technology. Non-value creative opportunities can be automated. How do we redeploy those bright people that work for us to other opportunities in the business,” Burchenson added following recent restructuring events.
As part of the move to look for better yielding opportunities, VM Wealth has been reducing its repurchase agreement liabilities as evidenced by the move from $19.65 billion in 2021 to $14.36 billion in 2023. This has meant that VMIL has had to approach the markets for more financing, which comes at a higher price, which in turn has seen a reduction in loans during 2023 due to clients not finding the higher interest rates attractive.
However, VM Wealth’s capital adequacy and capital management figures have considerably improved following the receipt of $1.5 billion in capital from VM Financial Group through the issuance of non-redeemable preference shares. While VMIL was in breach of a bond covenant at the end of 2023, it remedied the issue by the end of March 31.
VMIL’s first quarter revealed further compression in its net interest income which decreased by two thirds from $91.63 million to $31.40 million. However, there was a significant $686.77 million in gains from investment activities compared to the $98.90 million in Q1 2023. This largely stemmed from VMIL selling its 30 per cent stake in Carilend Caribbean Holdings Company Limited to VM Financial Group Limited, its direct parent company. VMIL acquired its original Carilend stake for US$750,000 ($106.10 million) in August 2019 before selling it to VM Financial for US$4.92 million ($752.90 million) on March 27.
That one transaction resulted in VMIL’s net interest income and other operating revenue climbing by 107 per cent to $911.94 million despite the other income areas largely showing a comparative decline. A six per cent increase in operating expenses to $470.39 million resulted in VMIL registering an operating profit of $441.55 million, which is better than the $5.25-million operating loss.
Apart from the $14.69 million share of profit contribution from its 23 per cent stake in Kingston Properties Limited, a large tax credit pushed net profit to $510.21 million compared to the $19.92 million figure in Q1 2023.
VMIL’s total assets grew two per cent during the quarter to $30.08 billion, with investment securities at $18.17 billion and cash at $461.91 million. Total liabilities and shareholders’ equity closed the quarter at $25.56 billion and $4.52 billion, respectively.
VMIL’s stock price declined five per cent to $2.75 on Tuesday to leave it with a market capitalisation of $4.13 billion.
“We’re cautiously optimistic based on some of the sentiments coming from the local authorities, primarily around a reduction in interest rates. It’s still early in the year, but I think we’re cautiously optimistic of a very strong performance in 2024,” Burchenson closed.
Published in the Jamaica Observer on May 22, 2024.
