✨ Financial Risk Analysis
28 AUGUST 2008 NEW ZEALAND GAZETTE, No. 133 3521
Sector Rating
| Government | 31,328 | 21,274 | 36,047 | 20,386 |
| Corporates | 17,503 | 13,060 | 1,588 | 15,818 |
| Mortgages | 17,050 | – | 12,668 | – |
| Swaps | (3,179) | – | 11,287 | (376) |
| Other | 4,931 | 6,760 | 1,187 | 3,718 |
| Totals | 67,633 | 41,094 | 62,777 | 39,546 |
Duration
| 0–3 years | 35,433 | 11,210 | 62,740 | 13,979 |
| 3–5 years | 15,271 | 17,095 | (540) | 13,525 |
| 5–7 years | 12,844 | 3,275 | 1,073 | 2,922 |
| 7–9 years | 1,082 | 2,996 | (3,321) | 902 |
| 9–11 years | (4,991) | 6,518 | 220 | 8,218 |
| 11+ years | 7,994 | – | 2,605 | – |
| Totals | 67,633 | 41,094 | 62,777 | 39,546 |
2. Liquidity Risk
Liquidity risk is the risk that the trust will encounter difficulties in meeting the obligations associated with its financial liabilities. This risk is managed through the trust’s investment in a diversified portfolio of financial assets. This portfolio consists of marketable securities which, under normal conditions are readily convertible to cash. In addition, the trust maintains sufficient cash and cash equivalents to meet normal operating requirements.
The trust’s financial liabilities comprise trade and other payables and committed but unpaid donations.
At balance date, the ratio of financial assets to financial liabilities was 56:1 (2007 – 36:1).
3. Market Risk
Market risk is the risk that the fair value of future cash flows from financial assets will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and market prices. Market risk is managed and monitored using sensitivity analysis and minimised by ensuring that all investment activities are undertaken in accordance with established mandate limits and the investment strategies set out in the trust’s statement of investment performance objectives.
3.1 Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of financial assets. The trust’s investment in global bonds is held in a pooled fund. Movements in interest rates will be reflected in each pooled fund’s fair value asset pricing. NZ Bonds are held in segregated accounts. The exposure to movement in the fair value of the trust’s bond portfolios is discussed in the commentary on price risk.
The trust’s self managed cash and deposit accounts are interest bearing. Any movement in interest rates on these accounts is minimal and is not considered to be material.
3.2 Currency Risk
Currency risk is the risk that the fair value of, or future cash flows from, financial assets will fluctuate due to changes in foreign currency exchange rates.
At balance date, the trust’s exposure to currency risk was as follows:
| 2008 | 2007 | |
|---|---|---|
| Foreign currency denominated financial assets | 128,513 | 134,746 |
| Less foreign currency contracts | 115,662 | 120,034 |
| Total unhedged exposure at 31 March | 12,851 | 14,712 |
3.3 Pricing Risk
Pricing risk is the risk that the fair value of financial assets will increase or decrease as a result of changes in market prices, whether these changes are caused by factors specific to individual stocks or factors affecting all financial assets in the market. Price risks arise from the Trust’s investment portfolio (the Fund). As reported in the section on Significant Accounting Policies, the financial assets are valued at fair value as determined by reference to their quoted bid price at the reporting date, wherever this information is available.
Sensitivity to fluctuations in income for the trust’s fund arising from market risk are set out in the following tables provided by the trust’s investment consultant, Russell Investment Group Limited.
Sensitivity Analysis for the Trust’s Portfolio 31 March 2008
| Asset Class | Asset Allocation | Long Term Expected Return p.a. | –1 Standard Deviation Return p.a. | 1 Standard Deviation Return p.a. |
|---|---|---|---|---|
| NZ Equities | 4.7% | 9.2% | –7.8% | 26.2% |
| Global Equities | 23.8% | 8.7% | –6.2% | 23.6% |
| NZ Fixed Interest | 21.9% | 6.3% | 3.0% | 9.6% |
| Global Bonds | 36.0% | 6.3% | 3.0% | 9.6% |
| NZ Cash | 5.7% | 5.7% | 4.2% | 7.2% |
| CCFs | 2.6% | 7.8% | –10.2% | 25.8% |
| Hedge Funds | 5.4% | 8.3% | 0.3% | 16.3% |
| Total | 100.0% | 7.1% | 2.2% | 12.0% |
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NZ Gazette 2008, No 133
✨ LLM interpretation of page content
💰 Sector Rating of Financial Assets and Liabilities
💰 Finance & RevenueFinancial Assets, Financial Liabilities, Government, Corporates, Mortgages, Swaps, Other
💰 Duration of Financial Assets and Liabilities
💰 Finance & RevenueDuration, Financial Assets, Financial Liabilities, Time Periods
💰 Liquidity Risk Management
💰 Finance & RevenueLiquidity Risk, Financial Liabilities, Investment Portfolio, Cash Equivalents
💰 Market Risk Management
💰 Finance & RevenueMarket Risk, Financial Assets, Investment Strategies, Sensitivity Analysis
💰 Interest Rate Risk Analysis
💰 Finance & RevenueInterest Rate Risk, Financial Assets, Bonds, Cash Deposits
💰 Currency Risk Analysis
💰 Finance & RevenueCurrency Risk, Foreign Exchange, Financial Assets, Unhedged Exposure
💰 Pricing Risk Analysis
💰 Finance & RevenuePricing Risk, Market Prices, Financial Assets, Investment Portfolio
💰 Sensitivity Analysis for Trust's Portfolio
💰 Finance & RevenueSensitivity Analysis, Asset Classes, Expected Returns, Standard Deviation
- Russell Investment Group Limited