(1) This rule outlines UNE's obligations to ensure appropriate and consistent financial and financial risk management for UNE and its controlled entities.
(2) This rule applies to the University, staff, contractors, office-holders, council members and controlled entities (staff and board directors). It applies to the following areas of financial management and financial risk:
(4) UNE's finances and financial risks are managed in a manner which:
(5) UNE's appetite for financial risk falls between risk-averse and moderate, primarily because it is a not-for-profit government-owned enterprise and requires predictable financial performance and position. Financial risk and return must be considered in the context of UNE's short, medium and longer-term goals.
(6) Investments must be selected that will protect the nominal value capital over the term of the investment.
(7) The objectives are:
(8) The Chief Financial Officer will develop and maintain plans for managing unforeseen events which may curtail cash flows and cause pressure on liquidity, including but not limited to:
(9) The University funding requirements and funding strategy will be reviewed annually and set out in the annual budget approved by Council.
(10) The annual budget will include a target capital structure that minimises the weighted average cost of capital without adversely impacting liquidity risk and that corresponds to the University's risk preference.
(11) Debt maturities will be spread out to limit risk on debt rollover. Any new facilities negotiated will be contracted with an adequate spread of maturities, taking into account the duration in debt funding requirements, balanced with the cost of capital over short or long tenors.
(12) Where practical and cost-effective, the University will access diverse sources of funding, in order to reduce re-financing risk. Funding sources may include banks, mutuals and capital markets.
(13) Liquidity and funding risk will be managed through the liquidity reserve (DEEWR, 1999, p56).
(14) The minimum liquidity reserve will be the sum of amounts required to cover:
(15) To manage short-term operating liquidity, a target operational cash float will be maintained, based on the minimum cash required to cover regular costs. Access to the short term operational cash float must be immediate. The expected return on the short term operational cash float is the cash rate.
(16) The objectives are:
(17) For debt, the Finance Committee of Council will approve interest rate risk management strategies.
(18) The University will manage debt interest rate risk by determining the appropriate level of fixed and floating rate exposure in each maturity band. The benchmark, and authorised ranges, will be based on a percentage of fixed interest rate exposure per year.
(19) Authorised ranges for fixed interest rate exposure on borrowings are set out in the following table.
|Maturity||Minimum fixed rate exposure||Maximum fixed rate exposure|
(20) The objectives are:
(21) The University will, where possible and appropriate, hedge the variability in cash flows associated with changes in exchange rates in order to fix amounts of foreign income and expenditure in Australian dollar terms.
(22) Committed (timing and amount) foreign currency exposures identified in excess of A$150,000 will be hedged between 50 and 100%, with foreign exchange contracts, to the expected date(s) of settlement. It is the responsibility of the relevant directorate, faculty or organisational unit to identify possible foreign currency transactions early and to formally request hedging cover immediately to the finance directorate. The finance directorate is responsible for transacting and managing foreign exchange risk.
(23) The products are:
(24) To ensure counterparties to UNE's financial transactions are creditworthy and that the transactions are within approved delegations.
(25) The requirements are:
(26) The following table sets limits for the short term cash float and the short term investment portfolio.
|Organisation||Credit Rating||Maximum exposure (% of short term cash float and STIP)||Maximum term to maturity|
|Licensed bank||AAA to AA-||100%||12 months|
|Licensed bank||A+ to BBB||40%||12 months|
|APRA approved credit unions and building societies||Rated or unrated||25%||6 months|
|Commonwealth or State Government||AA- or above||25%||12 months|
(27) The objectives are:
(28) Principles :
(29) This portfolio provides liquidity to meet short term operational and capital commitments by investing in financial instruments that are liquid, at interest rates higher than the transaction bank account and that have minimal chance of loss of capital. A fund manager/s may be engaged to manage part of or this entire fund (see section 5.2.3). Investments are limited to cash and fixed interest products and do not involve property or equity investments.
(30) Return required: outperform the weighted average return of Cash: UBS Bank Bill index (short term) & Fixed interest: UBS Composite Bond Index.
(31) Risk appetite: market yields are expected to cause occasional reduced performance.
(32) This portfolio augments the long term strategic objectives of the university by investing in growth asset categories aimed at returns marginally greater than fixed term interest with negligible chance of loss of capital. Money related to commitments which are more than one year away can be invested in this portfolio.
(33) For this portfolio, the university will engage a fund manager (see section 5.2.3).
(34) Return required: To match or outperform the average return of CPI plus 3% pa over rolling three year periods after deduction of investment fees paid (if any) for investment management. The target return for UNE Foundation investments is specified in Clause (41) below.
(35) Risk appetite: Annual returns are expected to be quite variable with a likelihood that on average 1 year in 5 may produce a negative return.
(36) The university may employ one or more fund advisers/managers to achieve its investment objectives. Where funds are held by a controlled entity, the controlled entity may also engage one or more funds managers. Where the services of fund managers are used, the managers will have full responsibility for the investment of the assets, within agreed mandates. Fund advisers and managers must, at all times during which investments are made, hold a current Australian Financial Services Licence and comply with their obligations under all laws including applicable ASIC policies and the conditions of any ASIC Class Order or individual relief granted by ASIC.
(37) Adding a new fund adviser/manager must be approved by the Finance Committee, Council and, where required by law, the NSW Treasurer.
(38) Authority to approve the transfer of funds to an approved funds adviser/manager is governed by the University's Financial Delegations.
(39) The university (and its controlled entities) may engage and seek advice from an investment adviser for services including but not limited to assessing the risk of investment in each investment category, the combined risk and return characteristics of the investment funds relating to each category, and in general product advice.
(41) Financial limits for investment transactions are in the UNE schedule of financial delegations. The following table sets limits for maturity, liquidity and investment targets.
|Investment portfolio||UNE Short Term Investment Portfolio||UNE Long Term Investment Portfolio||UNE Foundation Immediate Benefit Pool||UNE Foundation Perpetual Benefit Pool|
|Time Horizon||1 year or less||> 1 year||<12 months||Long term (in perpetuity)|
|Accessibility/liquidity||Within 5 business days||Within 30 business days||Within 5 business days||Within 30 business days|
|Target return||Cash: UBS Bank Bill index (short term) Fixed interest: UBS Composite Bond Index||CPI +3%||To protect the nominal capital value of the portfolio and meet cash flow requirements. Cash: UBS Bank Bill Index (short term)||Industry benchmark reflecting asset allocation|
|Target term||12 months||36 months or as funds required eg donations held in perpetuity||<12 months||Long term (in perpetuity)|
(42) The investment allocation benchmarks for the short term investment portfolio (STIP), the long term investment portfolio (LTIP), and the UNE Foundation investment portfolios are in the tables below.
|Short term investment portfolio asset class||Strategic benchmark||Tolerable range|
|Cash (at call, 11am, professional funds accounts)||5%||0-10%*|
|Fixed interest term deposits, promissory notes, treasury notes, government bonds||95%||92-97%|
Note:* The value of the level of cash held in the STIP shall take account of the value of the Cash Float.
|Long term investment portfolio asset class||Strategic benchmark||Tolerable range|
|Fixed interest and cash||55%||50-70%|
|Unlisted property funds||0%||0-5%|
|Australian listed property||2.5%||0-5%|
|Overseas listed property||0%||0-5%|
|UNE Foundation Immediate Benefit Pool||Strategic benchmark||Tolerable range|
|Cash equivalents, including money market instruments (including but not limited to bank bills and certificates of deposit), corporate floating rate notes and asset backed and mortgage backed securities||70%||50-80%|
|UNEF Foundation Perpetual Benefit Pool||Strategic benchmark||Tolerable range|
|Fixed interest and cash||40%||30-50%|
|Australian listed property||0%||0-5%|
|Overseas listed property||2.5%||0-5%|
(43) The university may lend funds. Approval of all lending shall be subject to delegations as if these were an expenditure.
(44) Any lending that results in a deterioration in the forecast end of year Net Asset position of the university, in comparison to the approved budget, shall be approved in advance by the Finance Committee.
(43) The university may provide an injection of capital to a controlled entity. Approval of all such transactions shall be subject to delegations as if these were an expenditure.
(44) Any equity transaction that results in a deterioration in the forecast end of year Net Asset position of the university, in comparison to the approved budget, shall be approved in advance by the Finance Committee.
(45) Apply appropriate controls to minimise the potential for financial loss through human error, fraud or the inappropriate use of financial instruments.
(46) Risk will be managed by:
(47) Any breaches of this rule will be reported immediately to the Chief Financial Officer, who will determine whether corrective action is to be taken.
(48) The breach will be reported to the Council Finance Committee at its next meeting, including the reasons for the breach occurring, and the corrective action taken, if any.
(49) The Chief Financial Officer will provide reports to the Vice-Chancellor monthly; and to the Finance Committee of Council for each of its scheduled meetings which:
(50) The Chief Financial Officer will establish procedures for the implementation of this rule.
(51) Under Section 16 of The University of New England Act 1993, the functions of Council include investing any funds belonging to or vested in the University, overseeing risk management and assessment and approving systems of control and accountability.
(52) The Finance Committee is a committee responsible to the University Council for the governance of the University's financial management activities. The responsibility of this Committee is to oversee and review financial and investment activities, approve asset allocation strategies, review and approve any policy, guideline or procedural changes and benchmarks and approve the appointment of any investment Fund Managers and/or consultants within the confines of the University's financial delegations. The Finance Committee is responsible for monitoring the development, review and implementation of financial strategies, policies and delegations.
(53) Controlled entities are expected to work closely with the University CFO in applying this policy.
(54) The Revenue & Investment Section within the Financial Services Directorate attends to the day ‐ to ‐ day investment activities under delegation and within these guidelines. This Section is responsible for managing the day to day cash flow operational needs of the University, short term cash requirements and managing the portfolio of investment funds not allocated to external fund managers for long term investment. Based on this rule, and under the direction of the Chief Financial Officer and the Director, Financial Services, the Section will determine broad targets for the level of available investment funds that are to be held in cash or cash equivalent forms.
(55) Counterparty credit risk means the risk of sustaining a loss as a result of a default by a counterparty to a transaction into which the University has entered.
(56) Counterparties may include banks that may have entered into a hedging transaction with the University related to the management of financial risks.
(57) Foreign exchange transaction risk means the risk of sustaining a loss due to movements in exchange rates. Such risks may occur through an increase in the Australian dollar value of foreign currency payables or a decrease in the Australian dollar value of foreign currency receivables.
(58) Hedging means making an investment or entering into a transaction with the aim of offsetting the risk of adverse price movements in an asset.
(59) Interest rate risk means the risk of a reduction in earnings, capital or cash flows as a consequence of movements in interest rates.
(60) Liquidity risk means the risk of sustaining loss due to having insufficient liquidity to meet future commitments.
(61) Financial transaction operational risk means the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.
(62) Financial risk management means the financial management of the university's collections, disbursements, liquidity and funding so as to mitigate financial, operational and reputational risk.
(63) Nominal capital protection assets which have a high certainty of retaining their dollar capital value at any time. Unlikely to be a good hedge against inflation, particularly when in a highly taxed environment. Defensive when growth assets fall, useful in emergencies.
(64) Stable cash flow assets where returns are expected to be skewed towards regular and possibly growing income streams rather than capital growth — although some capital growth may also occur. Income payments should be stable, but capital may fluctuate.
(65) Market direction low cost exposure to equity markets, either domestically or overseas. The aim is to gain access to and capture the direction of a chosen market as cheaply as possible, as well as any income the market derives.
(66) Active growth access to opportunities or skills which have potential to produce better returns than holding investments passively. Higher returns may come as a function of skilful risk management and relative protection of capital in down markets.
(67) Diversifier Investments or skills-based strategies designed to produce returns which are lowly correlated to the direction of equity markets or the performance of cash and fixed interest investments in Australia.