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VICTORIAN FUNDS MANAGEMENT CORPORATION BILL
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5 May 1994
Second Reading
STOCKDALE
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VICTORIAN FUNDS MANAGEMENT CORPORATION BILL Second reading Mr STOCKDALE (Treasurer) -- I move: That this bill be now read a second time. In December 1993 the government announced that it would establish a central funds management authority for public sector funds and authorities. When the investment portfolios of the funds and authorities in the public sector are aggregated, the public sector has an investment portfolio of over $13 billion. This bill gives effect to that announcement by establishing the Victorian Funds Management Corporation, which will provide funds management and advisory services to participating authorities on a voluntary and contractual basis. In making the decision to establish a funds management corporation, the government has taken into account the observations of the Auditor-General in his November 1993 report on the investment performance of government instrumentalities. The Auditor-General concluded that: The achievements of the Transport Accident Commission in particular have been excellent with returns over the last five years exceeding many large and medium-sized private sector funds. The commission has achieved these returns while maintaining a very low-risk profile. The vision embodied in this bill is that the investment system and strategies developed and utilised by the TAC in the past should now be made available to other funds and authorities in the public sector on a voluntary and contractual basis. The corporation will have the objective of providing professional fund management and advisory services to public sector funds and authorities that qualify as participating authorities. The corporation will provide those services through pooling the funds of its participating authorities in one or more trusts which will be established by the corporation and of which the corporation will also be the trustee. It is intended that the funds pooled in the trusts will be allocated to specialist funds managed by specialist private sector fund managers. Although the active securities management will be conducted by the private sector specialists, the passive portion of the portfolios may be managed by the corporation if this lowers costs. The performance of the private sector fund managers will be rigorously monitored by the corporation against investment mandates and benchmarks set by the corporation. The investment products offered by the corporation will necessarily take into account the investment strategies and asset allocations determined by its participating authorities. Although responsibility for setting investment strategies and asset allocations rests with, and is the responsibility of, the individual boards of the participating authorities, participating authorities will be able to avail themselves of the corporation's advice in setting their strategies and asset allocations should they so choose. Although the corporation will be required to operate within the prudential and reporting framework established by the Treasurer, it will also be expected to act on sound and prudent commercial principles and adhere to standards adopted by equivalent organisations in the private sector.
Page 1626
It is the government's intention to appoint to the Victorian Funds Management Corporation a commercial board comprising people of the highest calibre who have established records in commerce and relevant fields. Subject to the requirements of the prudential framework established by the Treasurer and the requirements of its participating authorities, the board of the corporation will be required to exercise independent judgment in the making of its investment decisions. To ensure that this independence is preserved the bill contains a clause that specifically prevents the Treasurer from influencing individual investment decisions of the board. The establishment of the corporation will provide significant benefits to its participating authorities through: increasing the range of markets and managers available to participating authorities and thereby enabling them to diversify their investment portfolios. It is through diversification that participating authorities will be able to lower the level of their portfolio's risk. In the case of smaller funds the establishment of the corporation is particularly important as it will enable them to access products which previously were outside their reach; economies of scale. The establishment of the corporation will lead to lower fees for the volume of trading undertaken by the corporation and savings on administrative costs; and access to the services of a corporation able to attract and retain skilled professionals, dedicated to overseeing the management of the investments of the public sector. The establishment of the corporation, which complements the initiatives already taken to manage the state's debt and financial liabilities, is part of the government's drive to establish a more efficient public sector. The corporation has the potential to contribute significantly to the rebuilding of the Victorian economy and the reinstatement of financial confidence in the public sector. I look forward to the corporation's participating authorities testing the capacity of the corporation to offer a range of products which enable them to diversify their risk and enhance their returns. I commend the bill to the house. Debate adjourned on motion of Ms MARPLE (Altona). Debate adjourned until Thursday, 19 May.