Other information
VicSuper's custodians
A custodian is a specialist organisation that holds title to an investor's assets, undertakes registration of securities, holds investments in safe custody and maintains accounting and taxation records on the investor's behalf.
VicSuper Fund's custodians are National Australia Bank and Westpac Banking Corporation, which maintains the Fund's bank account.
Use of derivatives
Derivatives are securities that derive their value from another security (eg futures and options). VicSuper uses derivatives to control the risk of movements in currency rates and share prices. We use derivatives carefully and all positions are fully backed by cash. Derivatives are not used for speculation or to leverage the Fund.
Currency Risk
VicSuper uses a 'passive currency overlay' to reduce the impact of currency movements on international investment returns. A full or partial currency overlay has been applied to VicSuper's investments described as ‘hedged' or ‘partially hedged'. For example, VicSuper's international fixed interest investments, which are 100% hedged, have a currency overlay applied over the total investment.
VicSuper acts on advice from our asset consultant, Frontier Investment Consulting. Overlays are implemented and managed by Vanguard Investments Australia Pty Ltd.
Unlisted investments
These investments are assets which are not bought and sold on a stock exchange. Unlisted investments which VicSuper invests in include private equity, commercial property, infrastructure and ecosystem services. At 30 June 2009, these unlisted investments comprised less than 20% of total assets of VicSuper Fund. Unlisted investments are generally re-valued on a quarterly basis.
VicSuper also invests in unlisted assets or unit investment trusts where the underlying investments are bought and sold on a stock exchange.
Securities lending
VicSuper has a securities lending agreement in place with our custodian, National Australia Bank (NAB. NAB has to access to securities held by VicSuper such as listed shares and Australian fixed income securities. NAB uses these securities as it sees fit – which generally involves being on-lent to major retail banks, investment banks and brokers. These borrowers in return pledge collateral (usually cash) to NAB; VicSuper and NAB receive a profit when this collateral is re-invested.
Full title to the securities passes to NAB while VicSuper retains all coupon payments, dividends, private placements and other benefits of ownership including the right to vote at annual general meetings. Securities lending arrangements assist the efficiency of global financial markets by increasing liquidity and enabling prices to better reflect the underlying value of the securities.
Investments over 5% of Fund assets
VicSuper is required by law to report any individual investments which exceed 5% of total Fund assets. As at 30 June 2009, the value of two individual investments did exceed 5% of total VicSuper Fund assets. These were VicSuper’s exposure to:
- the Vanguard International Fixed Interest Fund (VIFIF) – valued at 5.79% of total Fund assets, and
- the Treasury Corporation of Victoria – valued at 8.79% of total Fund assets.
VIFIF is a unit investment trust, of which VicSuper holds a large number of units. The underlying assets within this unit investment trust are a well diversified mix of many individual fixed income securities from around the world. The Treasury Corporation of Victoria investment also comprises many individual securities, and these are guaranteed by the Victorian Government. Please note that no single security held with the VIFIF or the Treasury Corporation of Victoria is greater than 5% of VicSuper Fund’s total assets.
Reserve account
VicSuper Fund’s reserve account may be used to adjust for any fluctuations in the Fund’s management and investment administration expenses. Please note that it is not our intent to use this account to smooth returns from year-to-year apart from minor rounding adjustments. The money in this account is spread across the investment options and managed in accordance with VicSuper’s investment policy.
| Year ended 30 June | Opening balance $M | Transfer $M | Closing balance $M | % of total assets |
|---|---|---|---|---|
| 2007 | 21.510 | 0.598 | 22.108 | 0.37 |
| 2008 | 22.108 | (2.266) | 19.842 | 0.32 |
| 2009 | 19.842 | (2.325) | 17.517 | 0.28 |