Recently there has been media coverage on the Cross City Tunnel in Sydney and the impact that this investment might have on the members of the superannuation funds, which invested in the Tunnel project.
The STC Pooled Fund (“the Fund”) has been an investor in the Tunnel since its commencement just under four years ago. The Tunnel represented a small part (around 0.2%) of the Fund’s total assets, which currently total around $30 billion.
The Fund’s investment in the Cross City Tunnel has now been fully written down. Consequently, there can be no future impact on the investment earnings or returns of the Fund.
Under STC’s legislation, all investments are managed by external fund managers. In this case, the Tunnel investment formed part of a diversified portfolio of private equity and infrastructure assets managed by Deutsche Asset Management. With such portfolios, it is not uncommon that some assets will perform very well (such as STC’s investment in Melbourne Airport) while others do not live up to initial expectations (such as the Cross City Tunnel).
The Fund’s investment in the Tunnel has already been written down to zero so that the small impact of this asset on returns has already been fully reflected in Fund earnings and declared rates of return.
The return for the Growth strategy in the year to 31 October 2006 was 16.4%. This is a strong return, which has been achieved after the full write down of the Tunnel.
The Tunnel investment has had no impact on the other investment strategies available to SASS members.
As the investment has now been fully written down, there will be no future impact from this asset on Fund earnings or declared rates of return.
Very few, if any, investments are totally risk free. Consequently, if one is investing to achieve acceptable long term returns, it is inevitable that a fund will need to incorporate risk management into development of the investment strategy.
A key factor in managing risk within the Fund is to broadly diversify the portfolios, including diversification by fund manager, by asset sector and by individual assets. In this way, the exposure to the risk attaching to any one manager, sector or asset may be limited.
From a member’s perspective, the key focus should be on the returns achieved by the total portfolio, which incorporates the total spread of the diversified portfolio, and not the performance of any one manager, sector or asset.
The Fund has been invested in the Cross City Tunnel for just less than four years. The rate of return achieved by the Growth strategy for the four years to 31 October 2006 has been 12.3%pa.
