legislative council standing committee on finance and ...€¦ · strategic asset allocation (saa)...
TRANSCRIPT
VICTORIAN FUNDS MANAGEMENT CORPORATION
Legislative Council Standing Committee on Finance and Public Administration
Presentation by
Victorian Funds Management Corporation on 2007/2008 Annual Report
27 April 2009
VFMC Representatives
Mr Alan Hawkes, VFMC Board Member and Chair of the Audit and Risk Committee
Mr Justin Pascoe, Chief Investment Officer and Acting Chief Executive Officer
Mr Brett Davidson, Chief Operating Officer
Mr Malcolm Ashbolt, Head of Client Services
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VFMC Background
1. VFMC was established under state legislation (Act No. 61) in 1994.
2. Our Minister is Mr John Lenders, Treasurer of Victoria.
3. VFMC reports to the Minister through the Department of Treasury and Finance.
4. Independent Board.
5. Arms length investment mandate.
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Our Clients
VFMC Client Profile^
^ As at 30 June 20084
Superannuation/ Pension Funds
47%
Other6%
Insurer's47%
The Treasurer’s Vision for VFMC
Delivers superior investment outcomes
for our clients
Leads the development of the Melbourne funds management industry
VFMC is to be a Centre of Investment Excellence
that …
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VFMC’s Stated Goals
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Overview of Investment Process
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Client Objective
VFMC Investment Team
MARKETSPerformance Results
Liabilities
Strategic Asset Allocation (SAA)
- Eg, 60% Equity / 40% Bonds
Custodian
‘Example’
Client Objective : CPI + 5%
Investment alternatives :Cash = CPI + 2 – 2.5%Index-linked Bonds = CPI + 3%Infrastructure = CPI + 6%Equities = CPI + 7%Etc
In addition to returns, consider risks and correlations
To achieve the Client Objective we cannot only invest in Cash and Index-linked Bonds
Our Client Boards recognise this and sign off on the expected risk-return trade-off reflected by the Strategic Asset Allocation mix
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VFMC Version 1.0 (1994-2006)
Clients Boards set Investment Objectives and Strategic Asset Allocation mix using their own consultants
VFMC acted as an Implementer of that investment strategy
VFMC a Manager of ManagersAll investments outsourcedAll VFMC decisions subject to Board approval processMany manager relationships
Investment Performance Results : In line with performance benchmarks before fees over 10+ yearsIn top 25% of comparable funds
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VFMC Version 2.0 (2006 – 2008)
Clients Boards set Investment Objectives
VFMC develops Strategic Asset Allocation (SAA)Considerable broadening of asset classes used / instruments invested in
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* Department of Treasury (DTF) Clients represent approximately 95% of VFMC Funds Under Management. Client SAA’s differ widely depending on their objectives
Average SAA for DTF* Clients
Revised Client Investment Strategies
Equities60%Inflation Linked
Assets17%
Debt & Other Absolute Return23%
Average DTF * Strategic Asset Allocation
at 30 June 2007
Equities56%
Inflation Linked Assets26%
Debt & Other Absolute Return18%
Average DTF * Strategic Asset Allocation
from 30 June 2008
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* Department of Treasury (DTF) Clients represent approximately 95% of VFMC Funds Under Management. Client SAA’s differ widely depending on their objectives
VFMC Version 2.0 (2006 – 2008)
Internal and external management
• Fewer external manager relationships
• VFMC synthesizes multiple perspectives of information flow– External Managers– Economists, Strategists, Research Analysts etc
• Investment team operates under Delegations from the VFMC Board
• Team of 30 investment professionals with a total staff of 67
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Focus on Total Portfolio
In managing portfolios to meet Client Objectives, VFMC creates diversified portfolios of investments in multiple asset classes
Our success is determined by Total Portfolio performance vs. Objective
Consistent with standard industry practice, VFMC does not comment on individual investments
Some transactions involving purchase of assets from listed entities, that were required to note the sale, have been confirmed by VFMC
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VFMC Advantages
VFMC seeks to maximize its advantages of scale and access to theworlds’ best investment views and resources.
• These combine with our long-term investment horizon to provide unique insights
In making specific investment decisions, VFMC’s investment team is driven by the following four Investment Belief Statements :
1. Only take risk where you expect to be rewarded2. Fees, taxes and transaction costs matter3. Markets mis-price assets creating opportunities to add value 4. Implementation / Execution is critical
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Delegations from VFMC Board
Crucial part of our ability to respond quickly as an investment manager in our own right
Supported by detailed internal review processes and reporting- Total Risk Allocation Committee (TRAC)
- Asset Class Heads, CIO chair
- Executive Investment Committee (EIC) - Heads of Operations, Legal, Client Servicing, Risk and
Investments (CIO), CEO Chair
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Governance Structure
Treasurer of Victoria
BOARD
Chief Executive Officer
Head of Legal & Compliance
Chief Operating
Officer
Chief Investment
Officer
Head of Client Service
Executive Investment
Committee (EIC)
Remuneration & Nominations
Committee
Operational Risk
Management Committee
Board CommitteesManagement Committees
Senior Management
Committee
Total Risk Allocation Committee (TRAC)
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Audit, Risk & Compliance Committee
Risk Framework
The VFMC and it’s Board are committed to effective compliance and risk management.
VFMC’s Risk Framework includes :- Compliance Strategy- Risk Management Process- Victorian Government Risk Management Framework
The Risk Framework is supported by appropriate internal policiesand procedures
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Operations and Systems
Critical link between our Investment Team, Settlement Operations, the Custodian, our Clients and Stakeholders. Supports :
– Reporting to Clients, Department of Treasury and Finance, VFMC Board and Management
– Investment Trade Instruction and Trade Settlement
– Risk monitoring and management
VFMC Operations and Investment Teams further supported by appropriate policies and procedures
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Portfolio Management System
Supports Internal investment functions and related operational functions. Capabilities include :
• Portfolio positions• Order Management, Trade Execution & Compliance• Trade Settlement / Custodial interface• Investment reporting
Required to support move from VFMC v1.0 to v2.0
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VFMC Financials
2007/2008 Period
Continued growth in headcount to support the internal investment program and broadening of the investment portfolio to achieve greater diversification
• As at 30 June 2007 VFMC had a total of 44 staff, including 19 Investment professionals.
• As at 30 June 2008 VFMC had a total of 67 staff, including 30 Investment professionals.
Investment in systems and data to support the internal investment management capabilities
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Financial Statements – Profit and Loss
2008$
2007$
Revenues 115,753,875 116,394,602
Expenses (113,268,176) (115,875,734)
Profit from continuing operations before income tax 2,485,699 518,868
Income tax expense (763,868) (165,182)
Profit from continuing operations after income tax
1,721,831 353,686
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Financial Statements - Balance Sheet
2008$
2007$
Assets
Current Assets 35,829,189 43,189,079Non-Current Assets
Total Assets
6,096,114
41,925,303
5,172,279
48,361,358
Liabilities
Current Liabilities 33,377,992 40,762,511Non-Current Liabilities
Total Liabilities
148,875
33,526,867
745,242
41,507,753
Net Assets 8,398,436 6,853,605
Equity
Contributed Equity 5,000,000 5,000,000Retained ProfitsTotal Equity
3,398,4368,398,436
1,853,6056,853,605
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Investment Performance
Performance – VFMC AggregatePeriods ending 30 June 2008
Intech category1 year 3 year 5 year
Growth (Gross) ‐10.08 7.16 10.66
VFMC ‐8.06 7.56 10.48
Source: Intech / NCS / VFMC
VFMC returns are the aggregate of VFMC's state clientsGrowth (>60%‐≤75% growth assets)
Median Returns (%) per annum to 30 June 2008
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ESSSuper Defined Benefit Fund
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Objective is CPI + 5% over rolling 5 year periods
ESSS (ex State Super) Long Term performance
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Objective is CPI + 5.5% over rolling 5 year periods
Parliamentary Contributory Superannuation Fund
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Objective is AWOTE + 2% over rolling 4 year periods
Transport Accident CommissionObjective is CPI + 5% over rolling 10 year periods
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Victorian Managed Insurance Authority
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Objective is CPI + 4% over rolling 5 year periods
Worksafe Victoria
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Objective is AWE + 4% over rolling 5 year periods
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1.
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