(1) This Policy supports the Financial Management Rule and outlines the objectives, processes, roles and regulations in place to guide UNE and its Controlled Entities in ensuring appropriate and consistent financial and financial risk management. (2) This Policy applies to all (3) Within this Policy: (4) Financial risk and return must be considered in the context of UNE's short, medium and longer-term goals. UNE’s overall risk appetite is moderate, primarily because it is a not-for-profit government-owned enterprise and requires predictable financial performance and position. However, individual projects or controlled entities may adopt more risk tolerant approaches in order to achieve specific, approved goals and objectives in accordance with approved policy. (5) The University funding requirements and funding strategy will be reviewed annually and set out in the annual budget approved by Council. To ensure adequate liquidity and funding for all circumstances, UNE aims to: (6) UNE will manage liquidity and funding risk through a liquidity reserve. The minimum liquidity reserve will be the sum of amounts required to cover the forecast shortfall (if any) in actual net cash flow, event risk, committed and uncommitted borrowing maturing within the next twelve months and strategic funding purposes. (7) 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. (8) 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. (9) Where practical and cost-effective, UNE will access diverse sources of funding in order to reduce re- financing risk. Funding sources may include banks, mutuals, and capital markets. (10) The Finance and Infrastructure Committee will approve interest rate risk management strategies. UNE’s strategy is to maximise returns while limiting risk to an acceptable level, minimise large variations in revenue or expenses and ensure an appropriate flexibility to accommodate potential changes in funding requirements. (11) UNE Treasury 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. (12) Authorised ranges for fixed interest rate exposure on borrowings are set out in the following table: (13) UNE Treasury is responsible for managing foreign exchange transactions and will use forward contracts (fixed or participating) and foreign currency bank accounts (with a combined balance of up to 100% of UNE’s expected annual forex obligations) as foreign exchange products. (14) UNE Treasury aims to, where possible and appropriate, employ hedging strategies to minimise large variations in cash flow arising from the impact of exchange rate movements. (15) Committed (timing and amount) foreign currency exposures identified in excess of AUD $100,000 will be hedged between 50 and 100%, to the expected date(s) of settlement. It is the responsibility of the relevant directorate, faculty to identify possible foreign currency transactions early and to formally request hedging cover immediately to UNE Treasury. (16) In managing UNE’s investments, UNE Treasury aims to: (17) Investment returns may experience volatility and fluctuations in market value. The University will tolerate volatility as measured against the volatility of a comparable market index in each asset class and a composite index based on the strategic allocation to each asset. The benchmarks and indices outlines in Appendix 2 are used as a measure of an investment manager performance and will also be used to benchmark what is allowable volatility. (18) The types of UNE investments are outlined below: (19) Authorised investment products are listed in Appendix 1. (20) To assist with managing investments, UNE Treasury and UNE’s controlled entities may: (21) Any 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. Engaging a new fund adviser/manager must be approved by the Finance and Infrastructure Committee, Council and, where required by law, the NSW Treasurer. (22) Financial limits for investment transactions are outlined in the UNE schedule of financial delegations. The following table sets limits for maturity, liquidity and investment targets. (23) UNE Treasury aims to allocate investments per the following tables: (24) To ensure counterparties to UNE's financial transactions are creditworthy and that the transactions are within approved delegations, UNE Treasury will: (25) The following sets counterparty limits for the Short-term and Medium-term Liquidity Pool investments: (26) The following sets the issue rating limits for Long‐term investments: (27) The following investment limits are designed to promote diversity of instruments while reducing potential concentrations in potentially illiquid or higher risk instruments for the Long‐term Pool. (28) Other Considerations – For both the Medium‐term Liquidity Pool and Long‐term Pool: (29) The following benchmarks are to be utilised for performance measurement of the underlying individual investment asset classes. (30) UNE Treasury will minimise the potential for financial loss through: (31) Any breaches of financial management Policies or Rules will be reported immediately to the Chief Financial Officer, who will determine whether corrective action is taken. The breach will be reported to the Finance and Infrastructure Committee at its next meeting, including the reasons for the breach occurring, and the corrective action taken, if any. (32) The Finance and Infrastructure Committee makes this Policy. (33) (34) This Policy is consistent with UNE’s obligations under section 16 of the University of New England Act 1993 (NSW). (35) (36) This Policy operates as and from the (37) Notwithstanding other provisions of this Policy, the Vice-Chancellor and Chief Executive Officer may approve an exception to this Policy where the Vice-Chancellor and Chief Executive Officer determines the application of the Policy would otherwise lead to an unfair, unreasonable or absurd outcome. (38) The implementation of this Policy will be supported and measured by the Chief Financial Officer conducting an annual review of UNE’s financial management, particularly investment practices and performance, and reporting on compliance with this Policy to the Finance and Infrastructure Committee and Vice-Chancellor and Chief Executive Officer. (39) Counterparty: the other party that participates in a financial transaction. (40) Interest coverage ratio: measures how many times a company can cover its current interest payment with its available earnings. (41) Liquidity: funds where availability is both immediate and unrestricted (42) Risk Appetite: the level of financial risk that is accepted as being consistent with an organisation’s goals. (43) Cash (44) Government Bonds (45) Credit (Domestic & Global) (46) Uncorrelated Strategies (47) Real Assets (48) Equity – Domestic (49) Equity – Global (50) DerivativesFinancial Management Policy
Section 1 - Overview and scope
Part A - Risk Appetite
Part B - Liquidity and funding
Managing liquidity and funding risk
Part C - Interest Rate Management
Table 1: Authorised ranges for fixed interest rate exposure on borrowings
Maturity
Minimum fixed rate exposure
Maximum fixed rate exposure
<5 years
50%
100%
>5 Years
40%
60%
Part D - Foreign exchange transactions
Part E - Investments
Fund advisers and managers
Table 2: Limits for maturity, liquidity and investment targets
UNE Short-term Investments
UNE Long-term Investments
Time Horizon
1 year or less
>1 year <5 years
>5 years
Accessibility/liquidity
Within 30 business days
Within 30 business days
80% liquid within 30 business days
Target return
Bloomberg AusBond Bank Bill Index
Bloomberg AusBond Credit FRN Index
CPI + 3.5%
Target term
12 months
36 months average
>5 years
Table 3: Investment allocation – short-term pool
Short-term Pool
Strategic benchmark
Tolerable range
Defensive Assets
Cash and cash equivalents
100%
100%
TOTAL
100%
Table 4: Investment allocation – medium-term liquidity pool
Medium‐term Liquidity Pool
Strategic benchmark
Tolerable range
Defensive Assets
Cash and cash equivalents
5%
0-30%
Government
0
0-95%
Credit*
95%
0-95%
TOTAL
100%
Table 5: Investment allocation – long-term pool
Long-term Pool
Strategic benchmark
Tolerable range
Defensive Assets
Cash and cash equivalents
5%
0-40%
Government Bonds
0%
0-20%
Credit*
15%
0-40%
Growth Assets
Real Assets
12%
0-20%
Equity – Domestic – Australian
30%
10-50%
Equity - Overseas
33%
10-50%
Uncorrelated Assets
5%
0-10%
TOTAL
100%
Part F - Government and Corporations counterparty credit exposures
Table 6: Risk rating category exposure limits – medium-term liquidity pool
Rating category (Issue Rating)
Limits (maximum ratio)
Maximum Term to Maturity
AAA or lower
100%
5 years
AA- or lower
70%
5 years
A or lower
70%
5 years
BBB to BBB-
50%
5 years
Unrated
0%
Table 7: Investment limits – medium-term liquidity pool
Investment Type
Percentage (%) of Portfolio
Senior (secured and unsecured debt)
0 – 80%
Subordinated debt
0 – 40%
Hybrids
0 – 20%
Table 8: Issue rating limits – long-term pool
Rating category (issue rating)
Limits (Maximum Ratio)
Maximum Term to Maturity
AAA or lower
100%
10 Years
AA or lower
100%
10 Years
A or lower
80%
10 Years
BBB or lower
50%
10 Years
Unrated
15%
10 Years
Table 9: Investment limits – long-term pool
Investment Type
Percentage (%) of Portfolio
Senior (secured and unsecured debt)
0 – 80%
Subordinated debt
0 – 40%
Hybrids
0 – 35%
Private Debt
0 – 15%
Table 10: Individual investment asset classes benchmarks
Asset class
Benchmark
Cash
Bloomberg AusBond Bank Bill Index
Government Bonds
Bloomberg Barclays Global Aggregate Treasuries Total Return Index, Hedged AUD
Credit
Bloomberg Barclays Global Aggregate – Credit Total Return Index Hedged AUD
Real Assets
FTSE/NAREIT Global Index Total Return (Property), AUD; and FTSE Developed Core Infrastructure 50/50 Total Return Index, AUD
Australian Equities
S&P ASX 200 Accumulation Index
International Equities
MSCI ACWI Gross Total Return Index, AUD
Uncorrelated Strategies
ABS AUS CPI + 2.0%
Part G - Financial Operational Risk
Section 2 - Authority and Compliance
Section 3 - Quality Assurance
Section 4 - Definitions
Appendix 1 – Allowable Investments
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*In extenuating circumstances, the Finance and Infrastructure Committee may approve exceptions to these ratios.
UNE Medium-term Investments
(Liquidity Pool)
* Refer to credit exposure guidelines specific to the Medium‐Term Liquidity Pool in Part F
*Refer to credit exposure guidelines specific to the Medium‐Term Liquidity Pool in Part F
Within the asset allocation ranges established for each of the investment pools, only investments in the following instruments are permitted:
Direct ASX listed equities.
Listed Investment Companies, Funds or Trusts (LICs, LITs) with an Australian focus.
Exchange Traded Funds (ETFs).
Managed Investments that are predominantly invested in Australian markets covering strategies such as:
Equity long only, Equity long / short, and
Private equity / Venture Capital.
Listed Investment Companies, Funds or Trusts (LICs, LITs) with an international focus c.g. Exchange Traded Funds (ETFs) d.h. Managed Investments that are predominantly invested in Global markets covering strategies such as:
Equity long only, Equity long / short, and
Private equity / Venture Capital
Derivatives may be considered should the Finance and Infrastructure Committee decide to take a recommendation to the Council; and
Derivatives are never to be used for speculative purposes.