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Legislative Assembly
 
VICTORIAN FUNDS MANAGEMENT CORPORATION BILL

5 May 1994
Second Reading
STOCKDALE

 


                  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.


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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.