1 AUGUST 2014 NEW ZEALAND GAZETTE, No. 84 2361

The Canterbury Community Trust

Notes to the financial statements

For the year ended 31 March 2014

in New Zealand Dollars ($000’s)

18 Financial instruments (continued)

The Group’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 Trust’s Board of Trustees. Under normal circumstances the Investment Portfolio is regularly rebalanced to ensure that asset classes remain within the Strategic Asset Allocation set out in the Trust’s Statement of Investment Policy and Objectives (SIPO).

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

1. To invest the Trust’s assets in such a way as to deliver the best possible risk-adjusted returns over the long term.
2. To ensure that funds are available for distribution, as required, to meet the need and distribution policies of the Trust.
3. To maintain the value of the Trust’s capital base in real terms.
4. To provide a modest level of additional capital growth.
5. To use best endeavours to invest prudently and consistent with its commitment to the United Nations Principles of Responsible Investment (PRI).

The Investment Portfolio

The Trust 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 early 2013. The Trust has engaged Mercer NZ Limited as its Investment Adviser for non-direct holdings.

Portfolio Characteristics

The Group is not directly involved with the analysis, sale or purchase of individual asset securities, apart from direct property. Investments are made in pooled funds with Fund Managers. The performance of each asset class is measured against an appropriate internationally accepted standard benchmark or index for each asset class.

Credit risk

Credit risk represents the risk that a counterparty to a financial asset fails to discharge an obligation which will cause the group to incur a financial loss.

The Group’s credit risk arises from any default by a counterparty. The current exposure at balance date is the fair value of these assets as disclosed in the Statements of Financial Position.

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, geographical 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 Group manages credit concentration risks through:

1. A diversified and non-correlated portfolio of investments across traditional and alternative classes.
2. Through use of a multi-fund manager approach to investments in its portfolio.
3. By ensuring compliance with the individual mandate requirements of each investment.

The Group’s SIPO stipulates value ranges that may be held in cash, New Zealand bonds, international bonds, emerging market bonds and property. Within each of these investment sub-groups there are maximum limits that can be invested within one financial institution. This diversified investment strategy reduces the credit risk exposure of the Group.

The Group only makes loans to entities that are well established and have the ability to demonstrate strong cashflows.

The SIPO sets out minimum credit standards that must be maintained before investments will be made in a range of asset classes.