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Legislative Assembly for the ACT: 2001 Week 6 Hansard (15 June) . . Page.. 1964 ..

MR RUGENDYKE (continuing):

on. You can't do that. You're investing more than the asset base of the bank is." When the bank collapsed, that is why he ended up in jail. My understanding is that there are those checks and balances. Funds managers do not allow cowboy investors to overstep the mark.

We seem to be doing this slightly back to front in that we have not seen the guidelines but we are asked to pass the legislation. I would be much more comfortable seeing the guidelines, which are a disallowable instrument, before any of these derivatives are used. An assurance has been given by government that this bill will not be enacted until we have seen the guidelines and until we have had a chance to disallow them, if necessary. So yes, there is a reason to be cautious; there is an element of risk.

The amendment about the word 'enhancement' has also been explained to me: you cannot determine what part of it is protection and what part of it is enhancement, and to try and separate the two is difficult. If we were to take out "enhancement" it would mean that the funds managers are stuck with tracking the top 200. This is called 'index tracking', which is based on the investments made by the top 200 successful companies on the stock exchange. We track how they are going. I think that 'enhancement'-I will be corrected if I am wrong-means that the guidelines can say, for example, 'index tracking' plus a couple of per cent to give us an edge, to give us a little bit more. Yes, there is a degree of risk, and we have got to be cautious.

Mr Quinlan: There's a high degree of risk. If the experts didn't tell you that, they failed in their brief.

MR RUGENDYKE: Yes, I was told there is a degree of risk, but it has also been advised by the committee-Mr Bernie Fraser and others. On balance, I am prepared to give it a go, subject to the guidelines being sufficiently strong that our assets are protected and enhanced. If I am wrong, tell me.

Saturday, 16 June 2001

MR QUINLAN (12.02 am): I am not sure over what period the good and faithful servants doubled their master's money in the biblical parable. If they did it in a short space of time, I do not want them handling our money. Doubling your money in investments usually implies a high degree of risk. If it was just over a year or so-had five, got seven now-that would do; that is good. But I would be asking: 'What are you doing?'

Mr Humphries: Usary was rife in those days.

MR QUINLAN: Yes. I am really only standing to say that my understanding of derivatives has already been overstated in this place by others. Please rest assured that I do not know a whole lot about futures, forwards, options or swaps. I do understand that you can use derivatives in a mix to reduce the risk of the portfolio, and I recommend you to be damned careful. I can remember standing in this place a year or two ago saying, "Don't sell Actew and turn it into cash because, when you turn it into cash, you're going to be playing in exactly this puddle." It would have been far better to get the whole utility returning a nice solid dividend every year.

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