Council forced to refine investments
Following last weeks review of NSW local government investments by Michael Cole, Lismore City Council will be grandfathering a large percentage of its portfolio.
This means Council is allowed to leave capital in existing funds, as long as they meet the credit-rating criteria, but if it were to withdraw the money it would not be allowed to invest in the same type of funds.
If Council had to realise the investments now, it would stand to make a substantial loss on the original investment. If they are held to maturity, Council anticipates recouping the original investment, although there are risks.
Councils manager of finance, Rino Santin, said Council had no direct exposure to the US sub-prime mortgage market but, because of the fluctuations in the financial markets, if Council had to realise its investments this week, the market value would be less than the original capital.
We always need to manage our investments carefully, Mr Santin said. Councils strategy to protect our investments is to hold them to maturity, which reduces flexibility to manage cash flow on a day-to-day basis. Other measures are being taken to support Councils cash flow.
Council has suffered a loss of $240,000 in interest due to funds under-performing.
The Cole Report made eight recommendations to the NSW Government, all of which have been adopted. They include: tightening permissible investment products and clarifying some existing definitions; grandfathering existing investments that are excluded by the changes; banning manufacturers and distributors of investment products from acting as advisors to councils; suspending until December 2009 councils ability to make any new investment other than through TCorp or in land, cash, bonds or other councils; ensuring councils are more fully aware of their obligations; and issuing an investment policy guideline for councils in addition to the existing framework.