7.2	ACT GOVERNMENT INVESTMENTS
Overview
This chapter provides details of the Territory’s investment arrangements, including investments held within the General Government Sector investment portfolio and the Superannuation Provision Account (SPA) investment portfolio.
Investments of the General Government Sector
Table 7.2.1 outlines the components of investments held by the General Government Sector.
Table 7.2.1 
General Government Sector Investments 
 	Est. Outcome	Planned	Planned	Planned	Planned	 	
 	30/6/05	30/6/06	30/6/07	30/6/08	30/6/09	 	
 	$'000	$'000	$'000	$'000	$'000	 	
 						 	
Cash	  76  909	  71  558	  71  537	  71  178	  72  102	 	
Current Investments	  637  857	  348  298	  258  451	  283  450	  361  334	 	
Non Current Investments	1  666  338	1  865  243	2  021  986	2  215  166	2  441  576	 	
Total Investments	2  381  104	2  285  099	2  351  974	2  569  794	2  875  012	 	
 						 	
Comprising:						 	
Superannuation Investments	1  448  607	1  628  401	1  831  046	2  043  732	2  268  085	 	
Territory Banking Account Investments	  382  719	  154  278	  24  418	  42  172	  110  352	 	
Investments held on behalf of PTE agencies	  22  688	  17  981	  19  929	  20  000	  23  737	 	
ACTIA Investments	  106  477	  137  283	  152  098	  154  954	  164  823	 	
Home Loan Portfolio	  101  235	  104  045	  106  674	  109  094	  111  338	 	
Other GGS Agency Investments	  319  378	  243  111	  217  809	  199  842	  196  677	 	
Total Investments	2  381  104	2  285  099	2  351  974	2  569  794	2  875  012	 	

Return on Investments
Table 7.2.2 provides the forecast return on investments held by the General Government Sector.  Further detail on investment strategies in relation to general government and superannuation investments is provided in the Significant Investment Holdings section within this chapter. 
Table 7.2.2 
General Government Sector Investments
 	Est. Outcome	Planned	Planned	Planned	Planned	 	
 	30/6/05	30/6/06	30/6/07	30/6/08	30/6/09	 	
 	$'000	$'000	$'000	$'000	$'000	 	
 						 	
Total Interest Revenue (as per GGS statement)	  78  138	  69  020	  57  566	  53  799	  55  211	 	
less: Interest payments received on loans from PTEs	  20  735	  21  660	  21  034	  20  945	  20  191	 	
Total Interest Return on Investments	  57  403	  47  360	  36  532	  32  854	  35  020	 	
 						 	
Interest Return on Investments						 	
 						 	
Total Investments	2  381  104	2  285  099	2  351  974	2  569  794	2  875  012	 	
less: non-interest earning investments*	1  447  094	1  626  868	1  829  509	2  042  190	2  266  537	 	
Total interest earning investments	  934  010	  658  231	  522  465	  527  604	  608  475	 	
 						 	
Interest Revenue	  57  403	  47  360	  36  532	  32  854	  35  020	 	
 						 	
% Interest return	6%	7%	7%	6%	6%	 	
 						 	
Total Return on Investments						 	
 						 	
Total Investments	2  381  104	2  285  099	2  351  974	2  569  794	2  875  012	 	
 						 	
Interest Revenue	  57  403	  47  360	  36  532	  32  854	  35  020	 	
Dividends	  17  013	  19  287	  21  686	  24  427	  24  427	 	
Market Gain/Loss on Value of Investments	  124  216	  85  840	  108  492	  121  042	  137  162	 	
sub-total Investment returns	  198  632	  152  487	  166  710	  178  323	  196  609	 	
 						 	
% Total Investment return	8%	7%	7%	7%	7%	 	
* such as shares and property investments, and unitised cash/fixed interest investments for which income is recorded as gains/losses.
Management of Investments
The Department of Treasury, through the Central Financing Unit (CFU), manages the surplus cash balances of the ACT and invests funds in the money market within projected cash flow requirements and established investment policies.  The Department, through the Superannuation Unit, is responsible for the investment portfolio representing the total assets set aside for the Superannuation Provision Account (SPA).
The CFU and Superannuation Unit utilise the services of an independent external Finance and Investment Advisory Board and an investment consultant to develop and implement investment objectives, strategies, benchmarks, funds manager research and appointment and other general investment advice as required.
The Territory currently has a contractual arrangement with JP Morgan Chase to provide master custodian services to the Territory, including safekeeping, settlement, derivatives clearing, valuation of investments, accounting reconciliations, accounting reporting, mandate compliance reporting, performance measurement, performance reporting, audit, performance attribution, transition of assets and taxation equivalent reporting.
The key initiatives for 2005‑06 are to undertake:
•	a strategic asset allocation review of the SPA investments and implement any changes to the investment portfolio structure as required; and
•	policy research and development for the implementation of continuous value‑add investment strategies for all Territory financial investment assets.
Significant Investment Holdings
General Government Investment Portfolio
The cash of the general government, not required for immediate expenditure, is currently invested in a cash enhanced fund and a domestic fixed interest fund.  These investment funds comprise the cash balance from the Territory Banking Account and the cash held by Government Departments.  Territory Authorities have the option of transferring funds to the CFU for inclusion in the pooled investment arrangement.
The cash enhanced fund is managed by Macquarie Investment Management Limited, and the domestic fixed interest fund is managed by Vanguard Investments Australia Limited.
The key investment objectives of these funds are shown below.
Cash Enhanced Fund
The investment objectives for this fund are specified in the following table:
Table 7.2.3
Investment Objectives – Cash Enhanced Fund
Benchmark	UBS Australian Bank Bill Index	
Outperformance Target	Benchmark + 0.10% p.a. (before fees) over rolling 1 year periods	
Tracking Error	No greater than 0.10% p.a.	
Duration Range	Benchmark  1 years	

Domestic Fixed Interest Fund
The investment objectives for this fund are specified in the following table:
Table 7.2.4
Investment Objectives – Domestic Fixed Interest Fund
Benchmark	UBS Australian Composite Bond Index	
Outperformance Target	Benchmark (before fees) over rolling 1 year periods	
Tracking Error	No greater than 0.20% p.a.	
Duration Range	Benchmark  2 years	
The estimated nominal return (net of fees) for the cash enhanced fund for the 2004‑05 financial year is 5.92%.  The estimated nominal return (net of fees) for the Fixed Interest Fund for the 2004‑05 financial year is 5.29%.
The low Fixed Interest Fund return during 2004‑05 is mainly due to rising domestic interest rates, impacting on market prices and hence reducing the market value of bonds held.
It is estimated that the full year returns (net of fees) in 2005‑06 will be in the order of 5.92% for the Cash Enhanced Fund and 5.99% for the Fixed Interest Fund.
Superannuation Provision Account Investment Portfolio
Funds are set aside in the SPA to assist the Government in meeting its long‑term employer superannuation obligations.  These funds are invested in accordance with an established asset allocation strategy that takes into account the long‑term nature of the SPA liabilities and projected cashflow requirements.
These funds, totalling approximately $1.4 billion, are managed by a number of specialist external funds managers.  The fund manager arrangements currently in place for the investment management of SPA assets are detailed below.  These managers provide either active or passive investment management services.
Table 7.2.5
External Fund Manager Arrangements
Asset Class
	Manager	
Cash	Vanguard Investments Australia Limited (passive)	
Australian Fixed Interest	Vanguard Investments Australia Limited (passive)	
International Fixed Interest	Vanguard Investments Australia Limited (passive)	
Australian Equities	Vanguard Investments Australia Limited (passive)	
	Perpetual Investment Management Limited (active)	
	WESTLB Asset Management(Aust) Pty Ltd (active)	
	Renaissance Smaller Companies Pty Ltd (active)	
International Equities	Vanguard Investments Australia Limited (passive)	
	Alliance Capital Australia Limited (active)	
	Wellington International Management Co. Pte Ltd (active)	
Australian Property	Colonial First State (active)	
	AMP Capital (active)	
	Queensland Investment Corporation (active)	
Australian Private Equity	Wilshire Australia Pty Ltd (active)	

The long‑term Strategic Asset Allocation (SAA), consistent with the long‑term investment objective of an average 5% (net of fees) real return per annum over the long‑term, equates to 85% of the portfolio invested in growth assets (such as equities and property) and 15% of the portfolio being invested in defensive assets (such as cash and fixed interest investments).

For the most part of 2004‑05, an asset allocation of 68% growth and 32% defensive was maintained.  Funds manager arrangements for the Property and Private Equity (Alternative) Investment asset classes have been finalised, but significant cash allocations are yet to be made. Due to the illiquid nature of these asset classes, cash is allocated on a progressive basis.  As such, there will be a continued higher exposure to cash for this proportion of the SAA until the cash is fully drawn.
The key investment objective of the SPA is to achieve a long‑term annual rate of return averaging 5% real (net of fees).  The 2004‑05 financial year has seen good returns from domestic and global equity markets that commenced when these markets recovered in 2003‑04.  The real rates of return assumptions used for the 2005‑06 Budget are 4.5% in 2005‑06 and 5% thereafter.
The estimated nominal return for the portfolio for the 2004‑05 financial year is 11% reflecting the improvement in the financial markets. 
The following table (7.2.6) illustrates the estimated asset allocation break up of the SPA at 30 June 2005. 
Table 7.2.6
Estimated Asset Allocation
Asset Allocation ‑ Superannuation Investment Portfolio	Estimated Asset Allocation at 30/6/05	Long-Term Target Asset Allocation	
			
Cash	19.1%	1.0%	
Australian Property	1.7%	10.0%	
Australian Fixed Interest	6.7%	7.0%	
International Fixed Interest (hedged)	6.7%	7.0%	
Australian Equities	31.8%	30.0%	
International Equities (hedged)	14.9%	15.0%	
International Equities (unhedged)	19.0%	20.0%	
Alternative Investments	0.1%	10.0%	
			
Total	100%	100%	
Other Significant Investment Holdings
Investments of the ACT Insurance Authority are also managed by the Central Financing Unit.  Amounts included at Table 7.2.1 identify the increasing allocation of claims provisioning to cover future liabilities.  For example, as medical malpractice and public liability claims can take a number of years to be paid, these funds can be set aside for investment purposes.
Another significant investment holding is that of the Home Loan Portfolio, also managed by the Central Financing Unit.  The level of investment reflects the repayment of home loans by clients, which are used to offset and repay historical debt relating to the original financing of the Home Loan Scheme.