✨ Financial Risk Management
2148 NEW ZEALAND GAZETTE, No. 96 1 JULY 2009
Concentrations of risk arise when a number of financial instruments or contracts are entered into with the same counterparty or where a number of counterparties are engaged in similar business activities, geographic regions, or similar economic features that would influence their ability to meet their contractual obligations by reason of changes in economic, political or other conditions.
The Trust manages concentration risks through:
- a diversified and non-correlated basket of investments
- ensuring compliance with the individual mandate requirements of each investment.
The Trust Manager, Trust’s investment advisor and the Trust’s Board review the portfolios for compliance against each investment mandate on a regular basis. The Fund Manager’s ensure that the funds they manage comply with their mandates as defined in the SIPO.
The credit quality of the Trust’s NZ Bond portfolio is managed by the Trust using Standard and Poor’s rating categories.
| AAA to AA | A+ to A- | BBB | Unrated | 2009 $ | 2008 $ | |
|---|---|---|---|---|---|---|
| Corporate Bonds | 28.4% | 27.7% | 25.0% | 5.6% | 49,580,516 | 49,465,099 |
| Cash | 13.3% | 7,599,675 | 6,337,916 | |||
| Total | 57,180,191 | 55,803,015 |
Forward Foreign Exchange Contracts
The Trust manages its foreign exchange risk by using forward exchange contracts to cover varying amounts of its foreign currency exposure. Such forward exchange contracts have the economic effect of converting foreign currency denominated balances into NZ dollars. These forward exchange contracts are not treated as hedges for accounting purposes. All contracts are with the Bank of New Zealand which has a Standards and Poor’s Rating of AA.
The following table details the three-month forward foreign currency contracts outstanding at reporting date (nil - 2008):
| Currencies | Buy Amount | Deal Rate | Valuation Rate | Gain/(Loss) |
|---|---|---|---|---|
| NZ$ | 12 January 2009 | 31 March 2009 | NZ$ | |
| Australian Dollars | 2,500,000 | 0.8396 | 0.8256 | (42,363) |
| Euros | 4,500,000 | 0.4338 | 0.4285 | (54,824) |
| British Pounds | 1,000,000 | 0.3853 | 0.3968 | 28,926 |
| Japanese Yen | 2,000,000 | 52.534 | 55.736 | 114,756 |
| US Dollars | 6,500,000 | 0.5820 | 0.5680 | (160,386) |
| TOTAL | 16,500,000 | (113,891) |
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.
The Trust’s investment portfolio during the year under review consisted of only listed securities which under normal market 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 all trade and other payables were current, and are normally settled on the 20th of the month following invoice date.
Committed but unpaid donations are held as current liabilities pending the satisfaction of conditions under which the donations were made. At balance date committed but unpaid donations totalled $1,620,750.
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NZ Gazette 2009, No 96
✨ LLM interpretation of page content
💰
Credit Risk Management
(continued from previous page)
💰 Finance & RevenueCredit risk, Counterparty default, Financial assets, Financial loss, Fair value
💰 Concentration Risk Management
💰 Finance & RevenueConcentration risk, Diversified investments, Investment mandates, Portfolio compliance
💰 Forward Foreign Exchange Contracts
💰 Finance & RevenueForeign exchange risk, Forward contracts, Currency exposure, Valuation rates
💰 Liquidity Risk Management
💰 Finance & RevenueLiquidity risk, Financial liabilities, Trade payables, Donations