Page 1806 - Week 07 - Tuesday, 15 June 1993
Next page . . . . Previous page . . . . Contents . . . . Debates(HTML) . . . . PDF . . . .
I will take the recommendations in turn, Madam Speaker. First is the question of amending the Bill to specify a 5 per cent limit on the use of derivatives by external fund managers. The evidence presented to the committee by Treasury was that derivatives were a financial management tool which, if used prudently, could improve the financial performance of a portfolio and provide an insurance protection against losses. It was clear from the evidence that the contracts intended to be entered into between Treasury and the funds managers would provide detailed specifications of the investments and strategies, limitations on portfolio structures, including limitations on the use of derivatives, reporting requirements and audit arrangements. In developing these contracts, Treasury was being advised by its consultant actuaries, Towers Perrin, and its capital market advisers, Commonwealth Bank Advisory Services.
I am satisfied, Madam Speaker, that these matters are being professionally handled, and that the Territory's interests are being properly protected. The actual level of a portfolio which could be applied to derivatives is not a question that can be readily answered by the Public Accounts Committee, at arm's length from the marketplace and from the current contracts negotiated. Nor should it be enshrined in legislation forever. I can assure members of the Assembly that the financial marketplace is volatile and that the Territory is best ensuring that its investments and borrowings are professionally managed within the opportunities and the circumstances that the marketplace presents. Given this, I would rather have the Government give a commitment to this Assembly that it will limit the use of derivatives to, say, 10 per cent of its portfolio, and that it will specify its limits in the contracts with the external funds managers. These contracts and limits should be reviewed after several years and amended to reflect the circumstances of the Territory and the marketplace at that time. At all times the Territory should act prudently and cautiously. Most importantly, the contracts, in keeping with the Audit Act, will specify that derivatives cannot be used for speculative purposes and may be used only to protect the investments.
On the second set of recommendations, my concern is that the concept of a board which the committee chairman has in mind is not yet clearly developed. The report, as presented to this Assembly, vacillates from proposing an advisory entity to requiring that the board appoint the external funds managers and that it report directly to the Assembly. Clearly this report is not a definitive piece of research and advice from which the Government can derive a clear direction. We do not really have direction on how a board should report. This needs to be made much clearer before we can decide on this.
Debate (on motion by Ms Follett) adjourned.
Next page . . . . Previous page . . . . Contents . . . . Debates(HTML) . . . . PDF . . . .