Introduction
The investment policy statement of Quantas states that there should be diversification and liquidity while selecting the portfolio for the fund. The policy statement also states that a member will make investment plan while choosing a portfolio whether a diversify portfolio or undiversified and does not pose a risk to the overall plan of the fund. I disagree with this position because if a member has a undiversified risk when his returns comes down may cause him to change his investment to another firm thus reducing the assets of the funds. When this happens the overall performance of the fund will be affected in form of liquidity and diversification since those assets which is considered from a certain area for fund will have moved out. Secondly, the policy statement states that a member is free to change his investment to any superannuation fund; this also poses a great risk to the fund especially when it is performing poorly, members may move out in large numbers thus diluting the liquidity of the firm as well reduce its assets. This policy should be accompanied by some limitations and the timing of the movement of members from the fund. The statement further states that members always bear the investment risk as well as benefits and the members have been given a leeway of whether to choose a diversify or undiversified investment the firm will be in great problems. In my opinion this will result to great problems to the fund.
The mission statement states that the fund will configure a mult-asset class investment option to ensure diversification of investment risk and ensure long term profitability and liquidity, going by the earlier statement of allowing members to choose a portfolio to invest in therefore it creates a contradict in the policy. However, the investment in mult-asset class investment option is the best policy if followed by the managing trustee. This goes down to the governance issue and policy. In the governance section that is statement 2.2 the managing of the fund is mandated to the investment committee through the managing trustee with undefined powers. However, the powers are not stated in this policy statement and if exercise there mandate properly they may act in a manner that is against the funds interest. Secondly, this investment committee gets most of their information for investment decisions from the executive managing team; if this managing team decides to collude they may cause a lot of financial problems to the funds. Therefore their roles should be at least mentioned in this policy statement to ensure proper governance and have roles separated. This should highlight their remuneration and the limits of the their authority
In the general investment objective and investment strategy beliefs it states that there should be investment in the assets that are adequately diversified with appropriate assets as well be able to make payments of benefits when they falls due. This statement is in line with other superannuation policy statements; however, it does not expand by what it means by stating that they should have sufficient liquidity to meet the need of benefit payments when they fall due. This policy should give guidance to the management on the levels of liquidity that should be maintained to ensure in cases of emergency the fund is able to meet obligations. In short the beliefs as stated in this policy statement seem to be in line with most policy statements and it is the best policy statement that has been prepared by the fund apart from the few mention cases.
Critique of investment portfolio
The investment portfolio as represented in this case that is Australia equities 25%, international shares 40%, property 5%, Australian fixed income 10%, international fixed income 10% and cash 10% is not in line with the laid down policies and objectives. It has major weakness which casts doubts on the keenness in following closely the policy of the fund. Looking at laid down specific investment objectives of the fund; this provides for investment in various diversified assets, I realized that investment in international shares is more than what is stated in the investment policy objective. The objectives states that international investment in shares should be a total of 23.4% that is both hedged and unhedged but this portfolio has gone ahead to have an investment 40% on international shares, this is far beyond the requirements. It shows that the policy and objectives of the investment is not followed to the letter by the executive investment team and investment committee, this endangers the liquidity and the diversification of investment by the fund.
They have invested in Australian equity at the rate of 25%; this is within the limits stated in the policy. The policy of the fund states that investment in Australian equities in main market should be approximately 26.1% for and 2.9% for small case organizations. It also states that investments should be made in property to the level of 10% that is 2% for unlisted property. This portfolio has not achieved these, since investment in property is half of what is required, 5%. This means that the excess investment international shares are from reduction in listed property. In case of devaluation of the currency there will be a major problem resulting translation exposure of the investment in the international arena. Investment in international fixed income is also on the higher level of 10% instead of 3.5% as stated in the policy and the objective statement of the fund this is completely unfortunate for the executive investment team who does not follow the laid down objectives of the fund. The objectives on cash investment are also beyond the rate of 0%.
However the investment policy and statement is not a final, therefore the investment management executive team must have a proper reason for investments in the portfolio made and these reasons must be in line with the policies of the fund. However if the investment in this portfolio is due to agency reasons that is personal interest then it should be disbanded and a new team set up.
In my opinion they have chosen an aggressive investment policy where they look at the return of the investments and tax savings because they have made a huge investment in international market as compared to what stated in their policy. Although it is an aggressive option they have tried to balance the portfolio in their investment they are making. If the investment in international shares is in various countries with various investment risks and options then their investment portfolio at the moment is good since the portfolio is well diversify under aggressive option.
References
Lumpy, S and Jones, C. (1999) investment appraisal and financial decisions making, 6th edn (international Thomson business press).
Strong, RA 2006, Portfolio construction, management and protection, 4th edn, Thomson South-Western, Mason, Ohio.