New Zealand Gazette – 2010 – No. 110

Page 2961

✨ Financial Statements Notes

30 AUGUST 2010 NEW ZEALAND GAZETTE, No. 110 2961

The Whangarei Community Foundation is currently part of a consortium developing a Donations Management System. Payments for the building of the system currently show as a loan. Once completed the amount will convert to a share of the value of the system.

10 Financial Instruments

Risks arising from the Foundation’s financial assets and liabilities are inherent in the nature of the Foundation’s activities, and are managed through an ongoing process of identification, measurement and monitoring. The Foundation is exposed to credit risk, liquidity risk, and market risk (including currency, interest rate and pricing risks).

The Foundation’s income is generated from its financial assets. Liabilities which arise from its operations are met from cash flows provided by these assets. Information regarding the fair value of assets and liabilities exposed to risk is regularly reported to the Foundation’s management, the Foundation’s Investment Audit and Compliance Committee and ultimately to the Board of Trustees. The Investment Portfolio is regularly rebalanced to ensure that asset classes remain within the Strategic Asset Allocation set out in the Foundation’s Statement of Investment Policy and Objectives (SIPO).

The SIPO sets out the Foundation’s investment objectives. These can be summarised as:

to ensure that the investment fund is invested prudently;
to provide inter-generational equity with regard to distribution levels over time;
to ensure that money is available for distribution, as required, to meet the needs and distribution policies of the Foundation;
to maintain the value of the investment fund’s capital base in real terms and to grow such capital value at a level equal to the population base growth of the region. Real in this context relates to the changes in the Consumer Price Index (CPI);

The Investment Portfolio

The Foundation manages its investment Portfolio in terms of its SIPO. The SIPO is monitored on a regular basis by the Board of Trustees and, as required, amended to reflect international best investment practice. The Portfolio’s strategic asset allocation is reviewed at three yearly intervals. The strategic asset allocation was last reviewed in 2007. Michael Chamberlain and Associates assists both management and Trustees with investment advice and portfolio monitoring.

Portfolio Characteristics

The Foundation is not directly involved with the analysis, sale or purchase of individual asset securities other than bonds and term deposits. Investments are made into either pooled funds or segregated accounts with Fund Managers. The performance of each asset class is measured against an appropriate internationally accepted standard or index for each asset class.

Global Equities:
This portfolio is measured against the MSCI World Index, and is 50% hedged back to New Zealand Dollars.

New Zealand Bonds:
The New Zealand Bond Portfolio is managed in house. The Investment Guidelines provide strict limits on the underlying investment categories, along with credit and duration restrictions. The portfolio is measured against the NZX Government Stock Index.

Cash:
The Cash Portfolio is managed in house. The investment guidelines place limits on the underlying investment categories, along with credit and duration restrictions. The portfolio is measured against the NZX 90 day bank bill index.

The Statement of Investment Policies and Objectives sets out the following risks and mitigations:

Risk	Definition	Foundation’s Management Policies
Interest rate risk	The risk that the value of a security, particularly a bond, will temporarily decrease in value as a result of a rise in interest rates.	Bonds are generally held to maturity. Such temporary decreases are therefore unrealised.
	Bond holdings are to the extent practical diversified by maturity date.
	The cash levels are set to minimise the potential needs to realise a bond to meet distribution needs.
Re-investment risk	The risk that interest, or dividends, received from an investment may not be able to be re-invested in such a way that they earn the same rate of return, or more, as the investment that generated them.	Bonds are structured to maximise diversification by duration and minimise the level of investments that mature at any point in time.
	New investments can be deferred if interest rates are low.
	Also, that at the time an investment matures, interest rates have fallen preventing the capital to be re-invested at the same yield.
Default Risk	The possibility that an issuer of a bond will fail to make a principal and/or interest payment in a timely manner on the due date.	Bond investments are restricted to investment grade or better, or the equivalent.
	Investments are diversified over a range of companies, industries and countries.
	Exposure to any one issuer is limited.
Currency Risk	The risk that changes in exchange rates will reduce the value of the assets.	Currency risks from shares are generally hedged, within controlled limits under the currency management policy.
	Part of the assets are invested in shares that provide a natural hedge against inflation.
Inflation Risk	The risk that inflation increases the size of the requests for distribution.	The Foundation looks to regularly increase the capital base over time to maintain it in real terms.
	The risk that a high level of inflation makes unexpected significant demands for capital base increases.
Market volatility	The risk that the investments will decrease in value with general market movements over the short term.	Investments are diversified across the asset classes, countries, industries and companies.
	Cash holdings are set to limit the need to realise assets and therefore market volatility does not impact on short-term distribution.
	The reserving policy helps minimise the impact market volatility on the distribution policy.
	The reserves of the Foundation above the 29% threshold are invested in cash/bond assets.
	Cash holdings are increased as opportunities arise to ensure that assets are available to meet distribution needs.

Gazette.govt.nz — NZ Gazette 2010, No 110

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✨ LLM interpretation of page content

💰 Notes to the Consolidated Financial Statements for the Year Ended 31 March 2010 (continued from previous page)

Domain💰 Finance & Revenue
KeywordsAccounting Policies, Grants, Trust Funds, Reserves, Revaluation, Reconciliation, Surplus, Cashflow, Operating Activities, Working Capital, Fixed Assets, Investments, Investment Policies, Asset Allocation
👱🏽 Names

Michael Chamberlain, Provides investment advice and portfolio monitoring

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