DIVERSIFICATION is the best way to boost the government’s investment funds, according to an expert. States investment adviser Rob McMicking said picking groups of investments that behave differently in different circumstances was key to increasing returns with minimum risk.
Treasury and Resources intends to invest in markets such as UK property because its recent downturn had presented a tempting buying opportunity.
‘We have to choose the right moment and, as always, the principle is to buy low and sell high,’ he said.
‘Exposure to foreign currencies is also an excellent route as
the pound has dropped 8% against the dollar and 15% against the euro, so clearly there are benefits.’
Treasury employs independent fund managers whose task is to manage three States funds totalling some £1.3bn.
Their mandate is to invest the money with a view to increasing returns within risk parameters set by the department which conform with the rules of permitted investment set by the States.
All three funds have achieved growth in the last year, although the current figures are only preliminary.
The Superannuation Fund is valued at approximately £875m., having grown 6.5% from last year. The Contingency Fund is now worth around £229m., up 4%, and the General Revenue Fund is valued at about £272m. - up 6%.
Mr McMicking said he was satisfied that all managers had good control systems to safeguard the island’s funds.
Treasury receives email alerts through a global custodian to notify it when any potential breach of exposure guidelines might occur.
‘Our system is a back-up for what is already in place,’ he said.
‘If for some reason the manager doesn’t catch something, we know we will.’
In December, Treasury announced the Superannuation Fund had suffered a paper loss of more than £2m. through an ill advised investment in troubled bank Northern Rock.
Asset management firm Schroders, which manages £170m. of States money, bought 250,000 shares at £10 each, but after the credit crunch their value plummeted to £1.
Overall, the Schroders portion of the pension fund had performed well and by staying overweight in equities, the fund overall had made a £40m. profit towards the end of 2007.
The company paid £2m. for shares in British Gas, now valued at £10.4m.
It bought £9m. of British Petroleum shares, which are now valued at £12.1m. Similarly, shares in Vodafone went from a cost of £9.9m. to a value of £11.1m.
Mr McMicking said the Northern Rock loss was an example of the benefits of diversification in avoiding exposure at difficult times.
‘We are clearly in uncertain times and this was a classic example of a bad event being offset by a good share selection elsewhere,’ he said.
‘There is not a single right answer in investment management.
‘You are trying to find the best trade-off between the return you want and risk.
‘You have to go into these things with your eyes wide open. We know we are taking risks, but we know why we are taking them.
‘We make sure everything we do is properly thought through. I feel good about what we have achieved.’
Guernsey is one of the few places in the world where there is money set aside for public employees’ pensions, social security for the public and a contingency reserve, he added.
‘It’s not a pay-as-you-go situation like the UK and to that extent, the people of Guernsey have benefited from good government.
‘I’m satisfied with the way finance investments are run here. The public has been well served by the people running the show and by those who did it before them.
‘It’s a solid financial basis for the island, but no one can predict what will happen in the future and we don’t know how hard the major economies will be hit.
‘My view is that it will be a tough year, but we should see growth again by 2009.’
There is a much improved outlook for the General Revenue Fund in 2008 and States finances should also benefit from a reduction in the expected drawdown on the contingency reserve following the introduction of zero-10, he added.
Article posted on 17th January, 2008 - 12.00am
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