Ordinary Council Meeting - Hastings Council - NSW Government

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PORT MACQUARIE-HASTINGS COUNCIL • Other Issues 'Current value $' in the table above is the estimate of current realisable value for the investment as provided by Oakvale Capital. It should be noted that this is not necessarily the amount that is expected to be received from the investment. All CDO investments are now outside of legislative and policy guidelines which technically requires remedy. These CDO's are unlikely to make maturity but given there is effectively no secondary market for these investments the opportunities to exit them are limited. As reported previously a number of ALN's have been deleveraged meaning no further coupons will be received. Invested capital for those products has reverted to underlying zero coupon bonds (low risk instruments with highly rated institutions). Investment Portfolio Summary (Oakvale Capital Limited) Council’s investment portfolio posted a marked to market return in January of 7.95% p.a. This was 2.79% p.a. above the bank bill index benchmark return of 5.16% p.a. Outperformance was driven by the high-yielding term deposits purchased in recent months (all of which are yielding over 6.20%), as well as a decline in long term swap rates, which assisted the price of the zero coupon bonds. For the financial year to date ending December, Council’s investment portfolio return has exceeded the bank bill index benchmark by 2.77%pa (7.74%pa vs 4.97%pa). (nb Oakvale use a different measurement approach to Council) Without marked-to-market influences, Council’s investment portfolio currently has an overall yield of 5.30%pa. This is based on the interest rates due on existing investments and excludes the underlying changes to the market value of the securities/deposits. Global issues: • Political and civilian unrest in Egypt has helped push oil prices to 2 year highs. • The UK economy is facing the prospect of stagflation as the economy shrank by 0.5% in Q4 2010 and inflation hit 3.7%. • Portugal managed to issue 10 year debt at below 7% during January, but many experts anticipate a bail out will be required given Portugal’s lacklustre economy. • Japan’s credit rating was cut to AA- by Standard and Poor’s on concerns that the country lacked a ‘coherent strategy’ to tackle its government debt. Domestic issues: • The recent floods in Queensland are expected to detract from growth in the early part of 2011. However, rebuilding for homes and infrastructure will provide a boost to growth in late 2011 and early 2012. • Underlying inflation was lower than expected at 2.25% year on year, the lowest result in a decade. Interest rates: • At its February meeting, the RBA left the cash rate unchanged at 4.75%. Most economists do not anticipate any rate increases until the 2nd half of 2011. PAGE 54
Alignment With Strategic Direction PORT MACQUARIE-HASTINGS COUNCIL Interest earned on investments is applied towards the provision of infrastructure in accordance with Council's objectives. Consultation In order to remain as informed as possible and to stay abreast of market changes, there are a number of different sources Council uses for reference, they are listed below. • Consultation takes place with the following institutions regarding market outlook and the status of Council's current investments : Oakvale Capital ANZ Westpac Banking Corporation FIIG Securities • Economic Commentary is also referred to from the following: Financial Press (eg. Financial Review) Macquarie Research Economics St George FIIG Securities BankWest CBA TCorp HSBC Newcastle Permanent Westpac Banking Corporation Planning and Policy Impact Not applicable Financial & Economic Implications Details of Investment Income Performance (Year to Date): PAGE 55
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