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GovernanceAction CreatedMeeting Date: 22/06/2011 - Council Meeting ___________________________________________________________Item 19Subject INVESTMENTS - MAY 2011 Director (ACTING) KRISTIAN ENEVOLDSON (CBS)___________________________________________________________

Investment management performance for the month of May 2011

RECOMMENDATION

That the report be received and noted.

Discussion

This report provides details of all funds that the Council has invested under Section 625 of the Local Government Act, for the period of May 2011.

All investments were made in accordance with the Act, Regulations and Council's Investment Policy.

Developments

Staff continue to monitor opportunities to switch to allowable alternate investments with a

greater forecast investment return to maturity.

With the recent appointment of Denison Advisory Services as Council's independent

investment advisor, one of their first tasks will be to review Council's portfolio and investment strategy.

Council's total investment portfolio performance for May performed 0.92% above the

benchmark (5.94% against 5.02%) and accrued investment income is 30.41% above the year-to-date budget after April's Budget Adjustment.

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Port Macquarie Hastings Council Investment SummaryAs at 31 May 2011

Alternative Investment Group

Investment Counter Rating Maturity Face value

$ Current value $

Unrealised Gain / (Loss)

% total current

Date Last coupon

Yield to Date (%pa)

Longreach Series 7 Prope LCM A+ 06-Jul-11 1,000,000.00 993,390.00 (6,610) 1.2% 7/07/2008 3.55% Dele

Longreach Series 12 Utiliti LCM A+ 29-Sep-11 1,000,000.00 984,270.00 (15,730) 1.2% 29/03/2011 3.08% Cap

Westpac Ethical Note WBC AA 05-Jul-12 1,000,000.00 951,436.46 (48,564) 1.1% 5/01/2009 3.51% Dele

Westpac Global Property N WBC AA 17-Sep-12 1,000,000.00 928,147.09 (71,853) 1.1% 14/09/2008 1.66% Dele

Longreach Series 24 Regi LCM A+ 13-Dec-12 3,000,000.00 2,743,500.00 (256,500) 3.2% 13/12/2007 1.48% Dele

Westpac Focus Note WBC AA 20-Dec-12 1,000,000.00 935,942.25 (64,058) 1.1% 20/12/2008 2.39% Dele

Longreach Series 32 Strat LCM A+ 23-Nov-14 3,000,000.00 2,356,200.00 (643,800) 2.8% 2/06/2008 1.01% Dele

Octagon Limi Emu FIIG AAA 30-Oct-15 1,000,000.00 773,900.00 (226,100) 0.9% 30/06/2008 2.58% Dele

12,000,000 10,666,786 (1,333,214) 12.6%

Pooled Managed Investment Group

Colonial First State Wholes Colonial N/A n/a 4,674 4,674 0 0.0% - From

4,674 4,674 0 0.0%

Current Account Investment Group

Westpac Business Cash R Westpac A-1+ At call 14,101,990 14,101,990 0 16.6% 4.75%

14,101,990 14,101,990 0 16.6%

Term Investment Group

National Australia Bank Lim NAB A-1+ 08-Jun-11 5,000,000.00 5,226,402.51 226,403 6.2% 6.2%

Suncorp Deposits and Tra Suncorp A-1 21-Jul-11 5,000,000.00 5,287,229.78 287,230 6.2% 6.47%

Bank of Queensland BoQ A-2 21-Jul-11 3,000,000.00 3,168,554.70 168,555 3.7% 6.35%

Bank of Western Australia BWA A-1+ 21-Jul-11 2,000,000.00 2,111,544.38 111,544 2.5% 6.3%

National Australia Bank Lim NAB A-1+ 08-Sep-11 5,000,000.00 5,239,358.73 239,359 6.2% 6.23%

National Australia Bank Lim NAB A-1+ 08-Sep-11 5,000,000.00 5,239,358.73 239,359 6.2% 6.23%

Bank of Queensland BoQ A-2 04-Nov-11 5,000,000.00 5,203,122.19 203,122 6.1% 6.4%

Members Equity Bank Mel ME A-2 02-Mar-12 2,000,000.00 2,048,906.14 48,906 2.4% 6.45%

ING Bank (Australia) Limite ING A+ 03-Sep-12 3,000,000.00 3,095,571.15 95,571 3.6% 6.61%

ING Bank (Australia) Limite ING A+ 04-Mar-13 3,000,000.00 3,118,108.57 118,109 3.7% 6.77%

National Australia Bank Lim NAB A-1+ 08-Dec-11 5,000,000.00 5,251,337.66 251,338 6.2% 6.23%

Suncorp Deposits and Tra Suncorp A-1 23-Mar-12 1,000,000.00 1,026,854.94 26,855 1.2% 7%

Elders Rural Bank Limited Elders A-2 26-Mar-12 2,000,000.00 2,058,043.90 58,044 2.4% 7.21%

Suncorp Deposits and Tra Suncorp A+ 18-Dec-12 1,000,000.00 1,066,004.58 66,005 1.3% 7.45%

47,000,000 49,140,398 2,140,398 57.9%

Credit Linked Note Investment Group

Investment Custodian Rating Maturity Face value

$ Current value $

Unrealised Gain / (Loss)

% total current Rollover

Current Yield

Corsair (Cay Torquay ANZ D 20-Jun-13 1,548,821.44 7,531.45 (1,541,290) 0.0% 20-Jun-11 6.49% No s

Ethical CDO I Green ANZ CCC- 20-Mar-14 5,000,000.00 947,559.00 (4,052,441) 1.1% 20-Jun-11 5.84% No s

Helium CapitaScarborough ANZ D 23-Jun-14 965,596.59 2,409.17 (963,187) 0.0% 23-Jun-11 6.6817% No s

Aphex Pacif i Glenelg ANZ CCC- 22-Dec-14 3,000,000.00 1,218,930.00 (1,781,070) 1.4% 22-Jun-11 6.5733% No s

Zircon FinancMiami ANZ NR 20-Mar-17 3,000,000.00 34,230.00 (2,965,770) 0.0% 20-Jun-11 6.3733% No s

Subtotal non-compliant 13,514,418 2,210,660 (11,303,758) 2.6%

13,514,418 2,210,660 (11,303,758) 2.6%

Floating Rate Note Investment Group

Home Building Society Sub ANZ A-2 25-Jul-11 2,000,000.00 2,006,340.00 6,340 2.4% 5.89% Aus

United Credit Union Ltd ANZ ADI 15-Nov-11 1,000,000.00 969,497.70 (30 502) 1 1% 7.2233% Aus

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Corsair (Cay Torquay ANZ D 20-Jun-13 1,548,821.44 7,531.45 (1,541,290) 0.0% 20-Jun-11 6.49% No s

Ethical CDO I Green ANZ CCC- 20-Mar-14 5,000,000.00 947,559.00 (4,052,441) 1.1% 20-Jun-11 5.84% No s

Helium CapitaScarborough ANZ D 23-Jun-14 965,596.59 2,409.17 (963,187) 0.0% 23-Jun-11 6.6817% No s

Aphex Pacif i Glenelg ANZ CCC- 22-Dec-14 3,000,000.00 1,218,930.00 (1,781,070) 1.4% 22-Jun-11 6.5733% No s

Zircon FinancMiami ANZ NR 20-Mar-17 3,000,000.00 34,230.00 (2,965,770) 0.0% 20-Jun-11 6.3733% No s

Subtotal non-compliant 13,514,418 2,210,660 (11,303,758) 2.6%

13,514,418 2,210,660 (11,303,758) 2.6%

Floating Rate Note Investment Group

Home Building Society Sub ANZ A-2 25-Jul-11 2,000,000.00 2,006,340.00 6,340 2.4% 5.89% Aus

United Credit Union Ltd ANZ ADI 15-Nov-11 1,000,000.00 969,497.70 (30,502) 1.1% 7.2233% Aus

Mackay Permanent Buildin WBC ADI 21-Nov-11 1,000,000.00 961,360.00 (38,640) 1.1% 6.0917% Aus

Holiday Coast Credit Union HCCU ADI 17-Apr-13 1,000,000.00 909,480.00 (90,520) 1.1% 8.62% Aus

Holiday Coast Credit Union HCCU ADI 17-Apr-13 500,000.00 454,740.00 (45,260) 0.5% 8.62% Aus

Holiday Coast Credit Union HCCU ADI 17-Apr-13 500,000.00 454,740.00 (45,260) 0.5% 8.62% Aus

Bank of Queensland Limite BoQ BBB+ 30-Sep-13 1,000,000.00 1,009,070.00 9,070 1.2% 6.41% Aus

Royal Bank of Scotland PL RBS A+ 10-Mar-14 2,000,000.00 2,031,520.00 31,520 2.4% 6.92% Aus

9,000,000 8,796,748 (203,252) 10.4%

95,621,082 84,921,255 (10,699,827) 100.0%

Note: EMU valuation is as at 30th April 2011 as it is the most current valuation available.

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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 upon maturity.

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 Equity Linked Notes have been delivered 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).

The SHIELD 21 investment matured and was repaid to Council with interest on 28th February. A small balance remains and has been transferred to a Colonial First State Fund - see schedule above.

Investment Portfolio Summary (Oakvale Capital Limited)

Council’s investment portfolio posted a marked to market return in May of 19.16%p.a. This was 14.14% p.a. above the bank bill index benchmark return of 5.02% p.a. Outperformance was as a result of large price increases in the Glenelg (27c to 40c) and Green (8c to 18c) CDO’s.

For the financial year to date ending May, Council’s investment portfolio return has exceeded the bank bill index benchmark by 4.04%pa (9.02%pa vs 4.98%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 5.40%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:

After a month long review, the EU and IMF have agreed to pay the next tranchen of

Greece’s bailout package, however Greece’s finances continue to concern financial markets.

US government debt reached US$14.3 trillion, a limit that it is not allowed to breach under

current legislation. If political wrangling does not result in a higher limit, government services may halt with defaults on its debts a worse case scenario.

US manufacturing and employment figures fell in May, suggesting that momentum in the US

economy has slowed considerably.

Japan’s economy slid back into recession in Q1 2011 with consumption and exports hardest

hit after the March earthquake and tsunami.

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Domestic issues:

GDP fell 1.2% in Q1 2011, its largest quarterly drop since 1991. Net exports caused

growth to fall 2.4% as a result of disruptions caused by severe weather events however domestic demand rose a strong 1.3%.

Retail sales posted a strong 1.1% rise in April, well ahead of market expectations of

0.4%.

Interest rates:

The RBA left the official cash rate unchanged at 4.75% following its June meeting.

Despite the weak GDP figure, most economists predict at least one interest rate rise for the

rest of 2011 due to strong business investment (particularly in the mining sector) and solid household consumption.

Alignment With Strategic Direction

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 CapitalANZWestpac Banking Corporation

Economic Commentary is also referred to from the following:

Financial Press (eg. Financial Review) Macquarie Research EconomicsSt GeorgeBankWestCBATCorpHSBC Newcastle PermanentWestpac Banking Corporation

Planning and Policy Impact

Not applicable

Financial & Economic Implications

Details of Investment Income Performance (Year to Date):

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The graph shows accrued investment income is 30.48% above the year-to-date budget.

T ota l Budget Budget YT D Accrued Re venue YT D$3,431,500 $3,149,459 $4,195,522

Summary of Actual Interest for May 2011

Options

This is an information report.

COUNCIL RESOLUTION:ADOPTED:

That the report be received and noted.