5.1	INVESTMENTS
Investments of the General Government Sector
The Territory has a strong balance sheet and holds significant investments.  Table 5.1.1 outlines the components of investments held by the General Government Sector including the Territory Banking Account (TBA), Superannuation Provision Account (SPA) and other investments.
Table 5.1.1
General Government Sector Investments
Budget	 	Est.Outcome	Planned	Planned	Planned	Planned	
30/6/09		30/6/09	30/6/10	30/6/11	30/6/12	30/6/13	
$'000	 	$'000	$'000	$'000	$'000	$'000	
	 						
126,303	Cash and Deposits	174,156	138,098	142,176	147,428	153,041	
3,351,348	Investments, Loans and Placements	2,817,554	2,533,878	2,713,903	2,842,153	3,129,325	
							
3,477,651	Total Investments	2,991,710	2,671,976	2,856,079	2,989,581	3,282,366	
							
	Comprising:						
2,344,629	Superannuation Provision Account	1,791,120	1,968,891	2,145,321	2,301,467	2,456,789	
703,683	Territory Banking Account 	630,794	152,415	122,781	69,550	177,379	
7,400	Investments held on behalf of PTE agencies	25,000	8,000	11,500	20,000	30,000	
173,825	ACTIA Investments	229,937	263,861	294,918	313,438	329,285	
114,267	Home Loan Portfolio	120,722	119,950	118,010	115,843	113,468	
133,847	Other GGS Agency Investments	194,137	158,859	163,549	169,283	175,445	
							
3,477,651	Total Investments	2,991,710	2,671,976	2,856,079	2,989,581	3,282,366	

Return on Investments
Table 5.1.2 provides the forecast return on investments held by the General Government Sector.  Further detail on investment strategies in relation to TBA and SPA investments is provided in the Significant Investment Holdings section within this chapter. 
Table 5.1.2
General Government Sector Investments
Budget	 	Est.Outcome	Planned	Planned	Planned	Planned	
30/6/09		30/6/09	30/6/10	30/6/11	30/6/12	30/6/13	
$'000	 	$'000	$'000	$'000	$'000	$'000	
	 						
164,671	Total Interest Revenue (as per GGS Statement)	147,617	92,512	90,805	92,221	96,437	
39,625	Less: Interest Revenue on Loans from PTEs	35,018	34,514	51,350	48,406	50,524	
							
125,046	Total Interest Return on Investments (a)	112,599	57,998	39,455	43,815	45,913	
							
	Interest Return on Investments						
							
3,477,651	Total Investments	2,991,710	2,671,976	2,856,079	2,989,581	3,282,366	
1,990,988	Less: Non-Interest Earning Investments¹	1,101,553	1,640,214	1,784,794	1,911,416	2,036,452	
1,486,663	Total Interest Earning Investments	1,890,157	1,031,762	1,071,285	1,078,165	1,245,914	
							
125,046	Interest Revenue (a)	112,599	57,998	39,455	43,815	45,913	
							
8%	Interest Return	6%	6%	4%	4%	4%	
							
	Total Return on Investments						
							
3,477,651	Total Investments	2,991,710	2,671,976	2,856,079	2,989,581	3,282,366	
							
125,046	Interest Revenue (a)	112,599	57,998	39,455	43,815	45,913	
49,980	Dividends	69,395	35,782	44,101	47,662	50,996	
90,464	Market Gain/Loss on Value of Investments	-360,805	88,866	100,040	107,604	114,888	
265,490	Total Investment Returns	-178,811	182,646	183,596	199,081	211,797	
							
8%	Total Investment Returns	-6%	7%	6%	7%	6%	
Note:
1.	Shares, equities and property investments of Superannuation Provision Account (SPA).

Management of Investments
The Department of Treasury (Treasury) manages surplus cash balances of the TBA and agencies and invests funds in the money market within projected cash flow requirements and established investment policies.  Treasury is also responsible for the investment portfolio representing the total assets set aside to meet the defined benefit employer superannuation liabilities of the Territory.
Treasury uses the services of external, institutional investment managers for the management of the financial investment assets.  Treasury also utilises the services of an independent external Investment Advisory Board and an investment consultant to develop and implement investment risk/return objectives, strategies, benchmarks, funds manager research, and other general investment advice as required.
Treasury also engages an external service provider to deliver master custodian services, including safekeeping of assets, settlement, derivatives clearing, valuation of investments, accounting reconciliations and reporting, mandate compliance reporting, performance measurement and reporting, audit, performance attribution, transition of assets and taxation equivalent reporting.
2009-10 Priorities
Strategic and operational priorities to be pursued in 2009-10 include:
•	continuing to monitor and review as necessary the SPA investment portfolio;
•	undertaking a strategic review of the TBA investment portfolio and implementation of changes as required;
•	undertaking policy research and development for the implementation of value-adding investment strategies for the SPA and TBA investment portfolios; and
•	continuing with the implementation, monitoring and reporting of the Government’s policy in relation to the application of Environmental, Social and Governance issues and risks in the Territory’s investment practices.
Significant Investment Holdings
Territory Banking Account 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 TBA, the cash held by departments and some Territory Authorities.  
The cash enhanced fund is managed by Macquarie Investment Management Limited, with the domestic fixed interest fund managed by Vanguard Investments Australia Limited.
The estimated nominal return for the Cash Enhanced Fund for the 2008-09 financial year is 4.25 per cent (original Budget estimate 7.25 per cent).  The estimated nominal return for the Fixed Interest Fund for the 2008-09 financial year is 12.6 per cent (compared to the original budget estimate of 7.5 per cent).
The returns experienced during 2008-09 are lower than what was estimated due to the reduction in interest rates generally (the Reserve Bank has lowered the official cash rate by 4.25 percentage points since September 2008) and the continued volatility from the ongoing global financial crisis and illiquidity of credit markets in particular.
It is estimated that the full year returns (net of fees) in 2009-10 will be in the order of 3 per cent for the Cash Enhanced Fund and 3.5 per cent for the Fixed Interest Fund.
Superannuation Provision Account Investment Portfolio
Funds set aside in the SPA are to assist the Government in meeting its long-term defined benefit 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 projected defined benefit employer superannuation liabilities and projected cashflow requirements.
These funds, totalling approximately $1.8 billion, are managed by a number of specialist external institutional fund 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 5.1.3
External Fund Manager Arrangements
Asset Class	Manager	Percentage of Portfolio	
Cash	Macquarie Investment Management Ltd (active)	17.6	
Australian Fixed Interest	Vanguard Investments Australia Ltd (passive)	9.5	
International Fixed Interest	Vanguard Investments Australia Ltd (passive)	9.6	
Australian Equities	Vanguard Investments Australia Ltd (passive)	7.8	
	Perpetual Investment Management Ltd (active)	7.5	
	Ausbil Dexia Ltd (active)	7.0	
	Renaissance Smaller Companies Pty Ltd (active)	1.9	
International Equities	Vanguard Investments Australia Ltd (passive)	12.4	
	Alliance Capital Australia Ltd (active)	4.9	
	Wellington International Management Co. Pty Ltd (active)	8.5	
Australian Property	AMP Capital Investors Ltd (active)	7.6	
Australian Private Equity	Wilshire Australia Pty Ltd (active)	5.7	
The SPA investment portfolio has a long-term investment strategy that is based on a strategic asset allocation (amount of exposure to cash, fixed interest, equity and property) that is expected to deliver a long-term average return of CPI plus 5 per cent (net of fees) per annum. The investment asset allocation modelling also assumes that there is an expectation for negative investment returns once in every 4 to 5 years.  The long-term Strategic Asset Allocation (SAA), consistent with this long-term investment objective, currently equates to 70 per cent of the portfolio invested in growth assets (such as equities) and 30 per cent of the portfolio being invested in defensive assets (such as cash and fixed interest investments).  For the most part of 2008-09, an asset allocation of 60 per cent growth and 40 per cent defensive was maintained.  
Investment markets have been under extreme pressure due to the global financial crisis and significant deterioration in the global economic outlook.  The SPA investment portfolio is not immune to global financial market turmoil and the portfolio has been negatively impacted by falling share prices. 
The nominal return for the portfolio for the 2008-09 financial year is estimated to be negative 13 per cent (net of fees).  The investment losses being recognised by the Territory are in-line with investment losses being recognised by other institutional and growth-orientated superannuation fund investors.
The portfolio has returned an annualised net return of CPI plus 3.9 per cent, compared with the target objective CPI plus 5 per cent real (net of fees) over the past thirteen years.  This is the first time the annualised return has fallen below the target objective.  In dollar terms, the negative SPA portfolio earnings equates to a net loss of approximately $262 million.
Table 5.1.4 illustrates the estimated asset allocation break up of the SPA investments at 30 June 2009.
Table 5.1.4
Estimated Asset Allocation
SPA Asset Allocation	Estimated Asset Allocation at 30/6/09	Long-Term Target Asset Allocation 1	
			
Cash	17.6%	0%	
Australian Property	7.6%	10.0%	
Australian Fixed Interest	9.5%	0%	
Global Fixed Interest (hedged)	9.6%	30.0%	
Australian Equities	24.2%	20.0%	
Global Equities (hedged)	10.4%	12.0%	
Global Equities (unhedged)	15.4%	18.0%	
Australian Private Equity	5.7%	5.0%	
Emerging Markets	0.0%	5.0%	
			
Total	100%	100%	
Note:
1.	Current approved long term strategic asset allocation strategy following the strategic investment review completed in 2007-08.
During 2009-10 it will be necessary to consider what implications there may be on the recently approved long-term strategic asset allocation as a result of the global financial crisis.  This means reconsidering the assumptions about return and risks for the various asset classes and whether these still remain appropriate for achieving a long-term annualised return of CPI plus 5 per cent (net of fees).  It may be necessary to adopt a different long-term strategic asset allocation strategy.
Other Significant Investment Holdings
As detailed in Table 5.1.1 Total Territory investments include the investment assets of the ACT Insurance Authority.  Amounts included at Table 5.1.1 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 the Home Loan Portfolio.  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.