Investment management
Overview
The value of investments held within the Victorian public sector at 30 June 1993 was well in excess of $13 billion. Sound management of these investments is critical to the successful operation of a number of agencies responsible for portfolios established to fund superannuation payments or insurance claims and agencies responsible for the management of funds on a trustee basis. Although investment performance does not necessarily affect the benefits paid to members of defined benefit superannuation funds or amounts paid to insurance claimants, performance does impact directly on the level of government funding necessary to enable future liabilities to be met. In view of the substantial funds invested, even minor variations in the rates of return achieved can have a marked influence on the income generated. While significant variations continue to occur between agencies in the returns achieved and, to a lesser extent, the management practices adopted, most of the large investment portfolios examined have achieved returns in recent years which are comparable with those of private sector fund managers and which are in line with agency objectives. Appropriate accountability frameworks and risk management strategies have been adopted by each agency including the diversification of portfolios to various asset classes and fund managers together with the establishment of prudential guidelines for the operations of fund managers. However, from a Statewide perspective, the measurement and monitoring of risks have been substantially ignored. Although the Department of the Treasury has established guidelines which set exposure parameters within which agencies are to operate, significant deficiencies were found in the central information systems and procedures for monitoring the actual investments made by agencies. Consequently, the Department has not been in a position to quantify the overall risk exposures of the Government or to promptly measure and evaluate the impact on the Government of any major change in government policy or sudden fluctuation in market conditions, such as a fall in interest rates or a collapse of stock markets.