acrrm investment policy

INVESTMENT POLICY STATEMENT

Australian College of Rural and Remote

Medicine

ABN 12 078 081 848

Level 2, 410 Queen Street

Brisbane QLD 4000

August 2019

2 ACRRM Investment Policy

Contents

1. Introduction .............................................................................................................. 4

1.1 About Australian College of Rural and Remote Medicine ....................................... 4

1.2 Purpose of Investment Policy ................................................................................. 4

1.3 Objectives of Investment Policy and Strategy ......................................................... 5

2. Mission, Vision, Purpose, Investment Philosophy and Objectives ............................ 6

2.1 Mission, Vision, and Purpose ................................................................................. 6

2.2 Investment Philosophy ............................................................................................ 6

2.3 Scope of Policy ....................................................................................................... 7

2.4 Investment Objectives ............................................................................................ 7

3. Corporate Governance for Investments .................................................................... 8

3.1 Roles and Responsibilities ...................................................................................... 8

3.2 Appointments and Delegations ............................................................................... 8

3.3 Investment Decision Making Process ..................................................................... 9

3.4 Delegations ............................................................................................................ 9

3.5 Conflicts of Interest ................................................................................................. 9

3.6 Terms of Reference of the Investment Adviser ..................................................... 10

3.7 Investment Adviser Review................................................................................... 10

3.8 Review of Investment Policy ................................................................................. 11

4. Risk Statement ....................................................................................................... 12

4.1 Liquidity Risk ........................................................................................................ 12

4.2 Credit Risk ............................................................................................................ 12

4.3 Currency Risk ....................................................................................................... 13

4.4 Market Risk .......................................................................................................... 13

4.5 Investment Manager Risk ..................................................................................... 14

4.6 Operational Risk ................................................................................................... 14

5. Investment Allocation & Reporting .......................................................................... 15

5.1 Asset Allocation .................................................................................................... 15

5.2 Risk Metrics .......................................................................................................... 16

5.3 Time Horizon ........................................................................................................ 16

5.4 Benchmarks for Performance Review ................................................................... 17

5.5 Overall Reporting .................................................................................................. 17

5.6 Performance Reporting ......................................................................................... 18

6. Investment Selection .............................................................................................. 19


6.1 Authorised Investments ........................................................................................ 19

6.2 Active versus Passive Investment Management ................................................... 19

6.3 Portfolio Investment Management Style ................................................................ 19

6.4 Gearing ................................................................................................................ 20

6.5 Direct Equities ...................................................................................................... 20

6.6 Fees and Performance ......................................................................................... 20

6.7 Safe Custody Arrangements ................................................................................. 20

6.8 Ethical Statement ................................................................................................. 20

Appendix 1: Investment Definitions ............................................................................... 21

Appendix 2. Corporate Credit Ratings ........................................................................... 23

Current Ratings (as at October 2016) ........................................................................ 23


1. Introduction 1.1 About Australian College of Rural and Remote Medicine

The Australian College of Rural and Remote Medicine (ACRRM) is accredited by the

Australian Medical Council (AMC) for setting professional medical standards for training,

assessment, certification and continuing professional development in the specialty of

general practice.

ACRRM are the only college in Australia dedicated to rural and remote medicine and play

an important role in supporting junior doctors and medical students considering a career in

rural medicine.

ACRRM is committed to delivering sustainable, high quality health services to rural and

remote communities by providing;

▪ Quality education programs;

▪ Innovative support; and

▪ Strong representation for doctors who serve those communities.

This Investment Policy Statement sets out the framework for prudent investment activities

for ACRRM.

1.2 Purpose of Investment Policy

The purpose of this policy is to provide a comprehensive overview of the portfolio

investment framework and an outline of the approach to be taken in respect of the

management of the following key areas:

▪ key investment objectives set by the Board;

▪ investment guidelines for each investment category;

▪ roles and responsibilities of those personnel and Board members charged with management of the investment portfolio; and

▪ reporting requirements relating to investment management.

The structure of this policy, including operational delegations, investment limits and

guidelines, is designed to ensure flexibility under a broad range of market conditions and

to reflect the potential for changes in the operations and objectives of the portfolio.


1.3 Objectives of Investment Policy and Strategy

The objectives of the Investment Policy are to:

(i) serve as a working document to facilitate all aspects of the ongoing prudent and

efficient management of the investment arrangements;

(ii) establish the duties of the Board, Management and Investment Adviser with

respect to the investment of assets;

(iii) define the investment objectives;

(iv) align investment objectives and activities with the related Board policies;

(v) specify investment guidelines, standards for monitoring investment performance

and reporting requirements;

(vi) establish a governance framework that demonstrates financial prudence to

stakeholders;

(vii) provide continuity and consistency for new Board Members and management

team;

(viii) protect the portfolio from ad hoc revisions of long-term investment policy;

(ix) define the criteria to evaluate different investments and Advisers;

(x) allow the organisation to review the performance of the portfolio and the asset

classes which comprise the investment portfolio against established benchmarks;

and

(xi) confirm the delegations and other relevant governance matters in relation to these

investments.

The Investment Strategy should be prepared to reflect the purpose and circumstances of the fund and take into account the following considerations:

▪ the risk involved in making, holding and realising, and the likely return from, the fund’s investments, having regard to the fund’s objects and its expected cash flow requirements (including distribution requirements);

▪ the composition of the fund’s investments as a whole, including the extent to which the investments are diverse or involve the fund being exposed to risks from inadequate diversification;

▪ the liquidity of the fund’s investments, having regard to its expected cash flow requirements (including distribution requirements);

▪ the ability of the fund to discharge its existing and prospective liabilities;

▪ the investment requirements imposed by State laws or Territory laws;

▪ status of the fund as a registered charity (where applicable); and

▪ perceived or actual material conflicts of interest in holding particular investments (including those relating to individuals involved in the decision-making of the fund).


2. Mission, Vision, Purpose, Investment Philosophy and Objectives

2.1 Mission, Vision, and Purpose

The mission of ACRRM is to be a vibrant professional home for members that delivers

inspiration, collegiality, value and social accountability.

The vision is the right doctors, in the right places, with the right skills, providing rural and

remote people with excellent health care.

ACRRM’s purpose is to improve the quality and safety of care for rural and remote

communities by setting professional standards for practice, delivering lifelong education,

support and advocacy.

Combined, the causes supported by the portfolio may be wide and varied, however the

portfolio exists to assist with working capital and operating revenue which will be decided

upon by the Board as to the appropriate use of funds at particular times. This may include

financial support towards, but not limited to:

▪ quality education programs;

▪ innovative support;

▪ representation of doctors who serve rural and remote areas;

▪ operational requirements;

▪ other costs or expenses to be decided upon at the time;

▪ reinvestment of funds for future growth and income; and

▪ college strategic objectives.

2.2 Investment Philosophy

The desire of the Board is for the portfolio to achieve growth and income. There is a need

to manage any investment in a manner that does not take on levels of risk that endanger

the long-term capital base. At all times the Board must exercise good stewardship to ensure

that the portfolio supports ACRRM’s objectives.

The portfolio investment philosophy is founded on the following beliefs:

(i) Capital is not allocated for investment unless the expected return is adequate to compensate for the assessed risk taken;

(ii) to protect capital, quality assets and proven strategies play a key role in risk mitigation;

(iii) risk should be viewed as both the potential to lose capital and the non-


achievement of investment objectives;

(iv) medium-term and long-term returns should be maximised within reasonable and prudent levels of risk;

(v) Asset Allocation is the key determinant of investment risk and return;

(vi) diversification of assets and investment strategies is essential in managing the investment risk; and

(vii) timeframes are a critical consideration in determining risk and return expectations.

2.3 Scope of Policy

The scope of this policy document is limited to investments, including liquid assets, to

support ACRRM, and in particular the mentioned portfolio.

2.4 Investment Objectives

The primary investment objectives of the portfolio are to:

▪ invest in a manner suitable for the aims, objectives, priorities and philosophy of the Board;

▪ adopt appropriate investment strategies to protect the real purchasing power of the portfolios funds and generate regular total return; and

▪ provide adequate liquid assets to fund the cash requirements of ACRRM, without substantially risking the capital value of the portfolio.

This translates into the following specific objectives:

(i) an investment return target - measured over a full market cycle of 5 - 7 years, is CPI + 3% per annum;

(ii) manage investment activities within the Board’s risk appetite and ensure that the portfolio does not create excessive risk exposures through its investments;

(iii) seek expert advice and reporting to Management and the Board relating to investment strategy, investment options, market outlook and liquidity;

(iv) diversify the investment categories to enable the portfolio to participate in reasonable capital growth as well as income from interest, dividends and distributions; and

(v) ensure that investment managers appointed by the Board operate in an effective and cost-efficient manner and comply with these investment guidelines.

8 | ACRRM Investment Policy

3. Corporate Governance for Investments 3.1 Roles and Responsibilities

The Board has the ultimate responsibility for ensuring that the investment of funds is

properly managed. The Board has the authority to set broad operational guidelines and

strategies for the management of these funds within the applicable policies. Specifically,

the Board is required to:

▪ approve the investment policy, strategic asset allocation target and any subsequent changes (in accordance with sections 3.2, 3.3 and 3.4 as seen below); and

▪ approve the investment limits and any subsequent changes.

3.2 Appointments and Delegations

Finance Audit and Risk Management (FARM) council is to oversee the Investment Policy

and investment performance for the portfolio and will report to the Board with recommended

investment allocations within the allocation limits. The FARM is required to:

▪ make recommendations to the Board regarding investment policy changes;

▪ make recommendations to the Board regarding changes in risk environment;

▪ make recommendations to the Board regarding asset allocation limit changes;

▪ review the strategic asset allocation of the investment portfolio periodically and ensure that it is aligned with the strategy and objectives (including the need for liquid assets);

▪ assess compliance of the investment portfolio with all guidelines;

▪ assess performance of the investments; and

▪ assess any other matters that are relevant from time to time. The Board will:

▪ make decisions on the recommendations from the FARM;

▪ review investment portfolio performance and compliance;

▪ review investment manager performance and compliance; and

▪ ensure the investments of funds for the portfolio are properly managed.

The Board will have ultimate responsibility for the day to day administration and may

wherever practical and appropriate delegate the administration functions of the investment

portfolio to a third-party adviser, such as Macquarie. Including:

▪ preparing performance reports;

▪ preparing compliance reports;


▪ investing the short-term cash needs of the portfolio;

▪ managing relationships with the Investment Adviser(s); and

▪ co-ordinating the annual review of the Investment Policy.

3.3 Investment Decision Making Process

Regarding investment transaction authorities, the Board has approved the following limits:

Transaction Detail Limit Requirement

Cash or Investment Up to a maximum of $100,000 GM Corp. Services

Cash or Investment Up to a maximum of $250,000 CEO or FARM Chair

Cash or Investment Up to a maximum of $750,000 FARM

Cash or Investment Unlimited Board

All investment decisions / transactions require two (2) signatures in accordance with the

Financial Delegations Policy.

3.4 Delegations

Please refer to the Financial Delegations Policy for approved authorisations and limits.

3.5 Conflicts of Interest

Board Members and Key Decision Makers must avoid or manage conflicts of interest that

arise in relation to the management of the Investment Policy.

Board Members, Key Decision Makers and each of their delegates must avoid any situation

where the duties owed by them under the Investment Policy conflict with;

▪ their personal interests; or

▪ their duties owed to another entity.

If a Board Member, Key Decision Maker or their delegate believes that a conflict is such

that he or she cannot bring an independent mind to the consideration of the matter, this

conflict must be disclosed as soon as practicable to the Board.

The conflict must be minuted at the next constituted meeting of the Board and the Board

Member, Key Decision Maker or their delegate must abstain from the decision-making

process on the matter.


3.6 Terms of Reference of the Investment Adviser

The Board has ultimate responsibility for all investment management decisions in relation

to the portfolio. However, the Board may seek specialist investment advice in relation to the

Investment Strategy and the ongoing decision-making processes under it (including advice

on portfolio design and construction, investment selection and the implementation of the

investment strategies) by appointing an Investment Adviser. Before making this

appointment, the Board must first satisfy itself that the Investment Adviser:

(i) Operates under an appropriate Australian Financial Services License;

(ii) has an appropriate track record as determined by the Board;

(iii) has professional indemnity insurance cover and provide evidence of it upon request;

(iv) is supported by dedicated internal compliance, audit and research teams;

(v) is suitably qualified having regard for the Investment Adviser’s education and professional experience;

(vi) is required under its engagement to exercise the care, diligence and skill that a prudent person would exercise in providing advice on the investment of funds;

(vii) displays objectives and tolerance for risk that are consistent with those of the Board;

(viii) is required under its engagement to adhere to the Investment Policy when making recommendations to the Board;

(ix) use a transparent fee structure acceptable to the Board;

(x) provide comprehensive and integrated investment management services to the Board. Including investment recommendations, implementation, monitoring, administration and reporting on the investment portfolio;

(xi) attend Board meetings as required;

(xii) have experience of providing investment services to organisations;

(xiii) have structured asset allocation processes and integrated risk management and portfolio construction processes in place; and

(xiv) Operates under an agreed Service Level Agreement (SLA) signed by both parties

The appointment of an Investment Adviser is the responsibility of the Board.

3.7 Investment Adviser Review

The performance of the appointed Investment Adviser will be reviewed at quarterly

meetings and formally reviewed annually, as detailed in the service agreement.

The performance review will include the following considerations:

▪ Financial performance of the investments;

▪ Quality of advice and adherence to strategy;


▪ Customer Service Standards;

▪ Attendance at meetings;

▪ Quality and Timeliness of Reporting; and

▪ Ongoing alignment of risk culture.

3.8 Review of Investment Policy

Maintenance of the policy is the responsibility of the Board. The policy will be reviewed annually, or as required and the Board will ensure any changes are incorporated into the Investment Policy.


4. Risk Statement

The Board requires the management of investment funds in a manner that reflects the risk appetite. This approach is to construct a diversified portfolio with the aim to maintain the real purchasing power of the fund after inflation and provide a stable source of income, liquidity, and growth to support the mission and operational requirements of ACRRM. This can include working capital at ACRRM’s discretion. The nature of financial markets dictates that investment values will change over time. Whilst acknowledging the importance of preserving capital, the Board recognises the necessity of accepting some risk if the fund is to meet its long-term investment objectives. Risks accepted in order to pursue the investment objective fall into six broad categories.

4.1 Liquidity Risk

The Board recognises that short term risks may arise from the potential of the portfolio to experience a shortfall in the income required to meet cash outflows. The Board also recognises that there is a premium to be earned on investments that are less liquid than others, such as cash, and that this premium can be measured in the search for additional investment returns. The Investment Adviser will be given no less than 30 days’ notice of the requirement for liquid funds.

4.2 Credit Risk

Credit risk (or counterparty risk) is the risk of default by the counterparty to a transaction on its contractual obligations. Appointed managers of investments are required to ensure:

▪ all interest-earning securities must have a minimum long-term average rating of A- or equivalent;

▪ any such investment is to have all counter party risk disclosed, assessed and confirmed by the Investment Committee;

▪ only securities with actively traded liquid markets that can be purchased on behalf of ACRRM and the portfolio; and

▪ If the rating level of a held security falls below investment grade the Investment Committee will specifically discuss at its meeting and provide a formal report to the Board for consideration and possible approval of any recommendation.

The portfolio should have a duration consistent with the investment strategy.


4.3 Currency Risk

A common objective for international investing is to diversify the portfolio away from Australian Dollar exposure. Where currency management is used it is usually implemented by applying a global asset allocation approach to management and/or by using some form of currency hedging.

The decision to hedge currency is to be determined by the Board with advice from the Investment Adviser. The approved currency management policy for global assets is as follows:

Asset Class Currency Hedge – Minimum Currency Hedge - Maximum

Global Bonds & Fixed Interest 100% 100%

Global Equities 0% 100%

Alternatives 0% 100%

Global Listed Infrastructure 0% 100%

It is important that any decision to take a position in a currency be linked to an underlying investment, and that no direct exposures to currency movements are taken in the funds with the specific intent of profiting from changes in relative currency values.

International fixed interest investment managers will use active hedging strategies as part of their investment process. This may result in hedging position of less than the prescribed minimum from time-to-time.

4.4 Market Risk

The Portfolio may have exposure to a wide range of assets which the Board expects will produce returns divergent from and superior to the risk-free rate over the long term. Principal exposures include:

▪ equity market risk, both globally and in Australia;

▪ debt market risk, including interest rate duration, credit spread duration, credit quality migration and default risks;

▪ currency exposure, including risks of movement in the value of both the Australian dollar and any foreign currencies held;

▪ correlation risk – the risk that a broad range of asset classes moves simultaneously, despite attempts to diversify;

▪ performance within broad asset markets (e.g. divergence in returns by sector, geographic region, growth vs. value styles, and large vs. small stocks); and

▪ return uncertainties within the illiquid property and private unlisted markets.


4.5 Investment Manager Risk

The requirement that the Fund’s external managers deliver superior returns also entails some risks. In particular, appointed managers may exceed or fall short of the objectives set for them by the Board.

Manager risk is generally managed by:

▪ careful selection and monitoring of managers to ensure there is sufficient confidence that each manager warrants the allocation of funds to them; and

▪ monitoring the composition of the portfolios of active managers to ensure that there are no unintended biases away from the intended investment strategy.

4.6 Operational Risk

This is general operational risk that may involve an economic loss or reputation risk. It includes fraud, theft, unauthorised use of financial instruments and other breaches of delegated authority. This also includes loss due to poor transaction documentation, inadequate information systems or human error.

To minimise this risk the Board will ensure that its external managers:

▪ keep proper accounts and records of the transactions and affairs;

▪ maintain an internal control framework that minimises potential loss arising from unrecorded or unauthorised transactions; and

▪ ensure the availability and reliability of hardware and software systems in support of custody and reporting requirements.


5. Investment Allocation & Reporting 5.1 Asset Allocation

The Board approves asset allocation limits and may vary them from time as it sees fit. These limits provide for changes in the investment environment and enable the Board to choose particular weightings according to the needs of the portfolio and the condition of the prevailing markets. The core investment strategy is to build the real value of the portfolio and generate growth and income for distribution over the long term. Strategic Asset Allocation guidelines for the portfolio with a target benchmark of CPI +3% are set out below.

Asset Class Benchmark Target Range

Australian Equity S&P ASX All Ords (Acc) 24% 15% - 40%

International Equity Russel 1000 (Acc), MSCI EAFE (Acc), MSCI EM (Acc) 28% 15% - 40%

Property GPR 250 REIT World Acc Index 5% 3% - 10%

Alternatives HFRI Composite Index 8% 3% - 10%

Total Growth Assets 65% 40% - 70%

Australian Bonds Bloomberg Aus Bond Composite 19% 0% - 30%

International Bonds Barclays Capital Global Aggregate (heged AUD) 15% 0% - 30%

Cash RBA Cash Rate 1% 0% - 10%

Total Defensive Assets 35% 30% - 60%

▪ the total defensive asset allocation must not fall below 30% and the total growth asset allocation must not exceed 70% of the portfolio, albeit market movements may cause the portfolio to trade outside of these ranges from time-to-time;

▪ in special circumstances, if the maximum limits are exceeded (or minimum limits breached), the Board will discuss diversification options with the Investment Advisor;

▪ asset diversification within managed funds should be considered within the portfolio framework;

▪ maximum investment in the equities and IPOs of any issuing organisation will be limited to 5% of the investment pool;

▪ maximum investment to one managed fund, SMA and/or ETF investment will be limited to 15% of the investment pool;

▪ maximum investment to one direct bond or hybrid security to be limited to 5% of the investment pool;

▪ the decision to increase the investment pool percentage will be made by the Board;

▪ at no time shall the portfolio enter into any type of margin lending arrangement, nor shall it apply direct leverage to the portfolio;

▪ the liquidity profile of the portfolio assets should be monitored constantly across all asset classes under both normal and stressed market environments, incorporating an appropriate margin of safety to ensure that liquidity is always available when required; and

▪ the Board will review the asset allocation limits periodically, at least annually.


5.2 Risk Metrics

As at 30 September 2018, the long term expected return and risk statistics are as follows:

Total Growth Assets 40% 45% 65% 70%

Total Defensive Assets 60% 55% 35% 30%

Expected Total Return 6.7% 7.6% 7.6% 7.6%

Expected Risk 5.0% 6.1% 7.7% 8.2%

68% Returns Between Upper 11.7% 13.8% 15.3% 15.8%

Lower 1.8% 1.7% -0.1% -0.5%

95% Returns Between Upper 16.6% 19.7% 22.7% 23.8%

Lower -3.1% -4.2% -7.5% -8.5%

Frequency of negative returns, 1 year in … 11.21 9.8 6.16 5.68

Probability of negative return in a a single year 8.9% 10.2% 16.2% 17.6%

Frequency of negative returns out of 20 years 1.78 2.04 3.25 3.52

The assumptions that make up this modelling are updated on a regular basis.

One of the most effective ways to manage investment risks is through portfolio

diversification. Appropriate diversification is achieved by having a sufficiently broad range

of assets, investment management styles and managers to mitigate the potential downside

risks resulting from overly concentrated exposures.

The portfolio will be constructed to achieve optimal diversification benefits for the funds in

accordance with the Boards’ policies, risk parameters and return objectives as outlined in

this document. The level of diversification and exposure limits will be determined by a range

of factors such as:

▪ Investment Strategy – by setting a strategic asset allocation in line with the stated objective;

▪ Manager – where appropriate using a combination of fund managers to minimise single manager risk and manager style bias;

▪ Asset Class – where possible investing in a combination of cash, fixed interest, equities, property and alternatives; and

▪ Sub Asset Class – where possible, look at breaking down the asset allocation between international and domestic investments as well as specific sectors exposures.

5.3 Time Horizon

The portfolio has a long-term investment horizon. The strategic asset allocations for the investment portfolio are based upon an investment horizon of greater than five (5) years at a minimum and expected timeframe between five (5) and seven (7) years, therefore interim fluctuations should be viewed with appropriate perspective.


5.4 Benchmarks for Performance Review

The benchmark for the overall portfolio measurement is CPI + 3% pa on a rolling 5 to 7 year basis. The Board shall review the performance of the investment and the Investment Adviser by comparing results to a benchmark. The benchmark for each asset class, where investment in that class is permitted, shall be as follows:

Asset Class Performance Benchmark

Australian Equities S & P ASX 300 Accumulation Index

Developed World Listed Russel 1000 (Acc), MSCI EAFE

Alternatives GPR 250 REIT World Acc Index

Emerging Market Listed MSCI Emerging Markets Index

Hedge Funds HFRI Composite Index

Global Bonds Barclays Capital Global Aggregate Index (hedged)

Australian Bonds Bloomberg Ausbond Composite Index

Cash RBA Cash Rate

The Board will review the benchmarks annually to assess the relevance and compatibility to the investments. The Board may also add to the performance benchmarks as it sees fit.

5.5 Overall Reporting

The Board shall cause a report to be prepared, not less than once every quarter, summarising current investment strategies, investment portfolio performance and investment portfolio compliance with policies and guidelines.

These reports are to be produced on a time frame that fits in with the meeting dates of the Board. The investment manager is to be available for quarterly meetings or upon the request of ACRRM outside of these reviews such as a FARM meeting.


5.6 Performance Reporting

The investment portfolio performance report is to include:

▪ the total market value of the investment portfolio;

▪ return on investment, expressed as a percentage;

▪ performance report on income, market movement and management fees;

▪ return on funds relative to the benchmark index on a rolling annualised and FYTD basis;

▪ the percentage of exposure to each investment category compared to policy guidelines; and

▪ compliance or otherwise with investment policy guidelines.


6. Investment Selection 6.1 Authorised Investments

The Board permits investment in the following asset categories:

▪ Australian equities

▪ US equities

▪ Global equities (ex-US)

▪ Corporate actions, including IPOs

▪ Property (Australian and international)

▪ Alternative investments and investment strategies

▪ Australian fixed income

▪ Global fixed income (hedged)

▪ Corporate credit (Australian and international hedged)

▪ Cash and deposits with financial institutions with an average credit rating of A-

▪ Alternative asset classes, commodities and absolute return funds;

▪ Unlisted alternative asset funds

The Board may from time to time allow investments in other asset categories by resolution, however investment instruments other than those listed above shall only be entered into with prior Board approval. Refer Appendix 1 for more detail of investment definitions Refer Appendix 2 - Corporate Credit Ratings

6.2 Active versus Passive Investment Management

Where Fund Managers are used, they will be selected on the basis of their quality as well as the role their particular investment strategy plays in the portfolio construction process. For active managers they should be assessed based upon the prospect they have of achieving superior risk adjusted returns relative to their peers and their stated benchmark. For passive managers they should be assessed against their ability to reliably track their chosen index benchmark in a cost-effective manner.

6.3 Portfolio Investment Management Style

The diversification of investment styles and managers is instituted to mitigate the potential downside risk to any one investment style or manager and to produce the optimal risk adjusted return profile for a particular asset class over the long term.


6.4 Gearing

Except in very limited circumstances, gearing is prohibited, and the portfolio will not utilise direct gearing in its investment strategy or activities unless authorised by the board.

6.5 Direct Equities

The direct equity portfolio must adhere to the liquidity policy and will, in main, only include assets that are available on public markets. This is due to the size, liquidity, regulatory and transparency requirements necessary for an asset to be included on public markets.

Fully franked income in the Australian equity component of an investment portfolio can increase returns through the receipt of franking credits while maintaining the same level of risk. For direct Australian equities therefore, stocks that deliver fully franked income are favoured in the portfolio. Whilst franked income would be favourable, the merits of the underlying investment and research would still be the key driver to the investment decision.

6.6 Fees and Performance

The portfolio is to be constructed using products and managers that have been assessed against their overall contribution to portfolio returns; this assessment includes an evaluation of fee competitiveness and historical performance.

6.7 Safe Custody Arrangements

ACRRM will only use Investment Advisers who have a well-established custodial service; and wherever possible and desirable, investments are to be registered in the name of ACRRM. If investments are registered in the name of the Investment Adviser or an independent custodian, such investments must be specifically recognised and recorded by the Investment Adviser, or independent custodian, as being held solely in trust for ACRRM. The Custodian must have a complaints resolution scheme and be related to a major

Australian based Operator.

6.8 Ethical Statement ACRRM is a community and member focussed organisation. ACRRM is committed to social good and in particular, the health and well-being of rural and remote communities. All investments must fulfil the ethical criteria of ACRRM. Any activity or company associated with any activity that conflicts with this commitment is disqualified from direct investment. The Board may advise on sectors that it will not invest in from time to time. The Board will not directly invest in sectors, industries or companies involved in the manufacture or production of tobacco, armaments, alcohol or gambling.


Appendix 1: Investment Definitions Cash Securities

For the purposes of this policy cash securities are deemed to be:

▪ bank bills and term deposits;

▪ cash management trust accounts; and

▪ bank accounts with Australian licensed banks.

Guidelines for investing in cash securities:

▪ all investments are to be with banks currently holding an Australian banking license; excluding investments with managed investment funds or portfolio managers where it is necessary for the manager to hold a certain amount of cash in order to provide the relevant services;

▪ all cash securities must have an average credit rating level of A- or equivalent*;

▪ the maximum limit of funds held in any one bank is to be set by the Board from time to time;

▪ bank bills and term deposits must have an original maturity term no longer than 90 days; and

▪ bank bills and term deposits maturing beyond 90 days must be allocated against interest-earning securities.

*Refer Appendix 2 - Corporate Credit Ratings

Interest-earning Securities

For the purposes of this policy interest-earning securities are deemed to be:

▪ Floating rate securities;

▪ Fixed rate securities;

▪ inflation linked securities;

▪ securities issued by supra-nationals;

▪ Commonwealth Government bonds;

▪ State Government or Government authority bonds;

▪ bank and corporate bonds, medium term notes, floating rate notes, debentures or other forms of transferable, coupon-bearing, instruments;

▪ mortgage backed notes;

▪ units in managed investment funds holding fixed income and interest earning securities, or ETFs;

▪ indexed bonds and annuities; and


▪ bank bills or term deposits maturing beyond 90 days.

Equities

For the purposes of this policy equities are deemed to be:

▪ shares, convertible notes, options or any other security that exposes the portfolio to the movement in the value of an organisation’s equity domestically and internationally;

▪ Corporate Actions, including IPOs;

▪ Separately managed accounts (SMAs);

▪ units in managed investment funds holding equity-based assets, including ETFs; and

▪ any exchange traded derivatives for the purpose of hedging the portfolio. Guidelines for investing in equities are:

▪ no greater than 10% allocation outside of the ASX 300 index;

▪ equities being offered as part of an Initial Public Offering are limited to 5% of the portfolio upon application; and

▪ the issuer should have a proven track record of good financial performance.

Guidelines for investing in managed investment funds are:

▪ the fund manager should have a proven track record of good financial performance. Any investments with equity features or the ability to behave as an equity type security either in the present or at some time in the future are to be classified as equity.

Alternative Investments (including Property)

An alternative investment is an investment product or security other than the three traditional asset types (stocks, bonds and cash). This includes absolute return funds, managed futures, private equity, real estate (listed and unlisted), commodities and derivatives contracts.

Typically, these investments demonstrate a low correlation with traditional financial investments such as stocks.


Appendix 2. Corporate Credit Ratings

Current Ratings (as at October 2016)

acrrm investment policy

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