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Higher Education Endowment Fund Bill 2007

Part 3 Investment of the Higher Education Endowment Fund

   

20   Simplified outline

                   The following is a simplified outline of this Part:

•      The Future Fund Board of Guardians is responsible for deciding how to invest the Higher Education Endowment Fund.

•      Investments of the Higher Education Endowment Fund will consist of financial assets.

•      Investments of the Higher Education Endowment Fund will be held in the name of the Future Fund Board.

•      The Future Fund Board of Guardians is bound by a Higher Education Endowment Fund Investment Mandate given to it by the responsible Ministers.

21   Objects of investment of the Fund

             (1)  The main object of the acquisition by the Future Fund Board of a financial asset as an investment of the Fund is to enhance the Commonwealth’s ability to:

                     (a)  make grants of financial assistance to eligible higher education institutions in relation to capital expenditure; and

                     (b)  make grants of financial assistance to eligible higher education institutions in relation to research facilities.

             (2)  The ancillary objects of the acquisition by the Future Fund Board of a financial asset as an investment of the Fund are to enhance the ability of the Commonwealth and the Future Fund Board to:

                     (a)  discharge costs, expenses, obligations and liabilities; and

                     (b)  make payments;

as mentioned in paragraphs 16(1)(c) to (i) and 16(4)(a) to (g).

22   Investment of the Fund

             (1)  The Future Fund Board may invest amounts standing to the credit of the Fund Account in any financial assets.

             (2)  Investments under subsection (1) are to be made in the name of the Future Fund Board.

             (3)  Investments under subsection (1) are taken to be investments of the Fund.

             (4)  This section does not authorise the acquisition of a derivative.

Note:          For acquisition of derivatives, see section 31.

23   Management of investments of the Fund

             (1)  Income derived from an investment of the Fund is to be credited to the Fund Account.

             (2)  A return of capital, or any other financial distribution, relating to an investment of the Fund is to be credited to the Fund Account.

             (3)  The Future Fund Board may realise an investment of the Fund.

             (4)  Upon realisation of an investment of the Fund, the proceeds of the investment are to be credited to the Fund Account.

             (5)  At any time before an investment of the Fund matures, the Future Fund Board may authorise the re-investment of the proceeds upon maturity in a financial asset investment with the same entity. The new investment is taken to be an investment of the Fund.

             (6)  Section 39 of the Financial Management and Accountability Act 1997 does not apply to an investment of the Fund.

24   Higher Education Endowment Fund Investment Mandate

             (1)  The responsible Ministers may give the Future Fund Board written directions about the performance of its Higher Education Endowment Fund investment functions, and must give at least one such direction.

Note 1:       Higher Education Endowment Fund investment function is defined in section 5.

Note 2:       For variation and revocation, see subsection 33(3) of the Acts Interpretation Act 1901 .

Note 3:       See also section 53 (additional obligations of responsible Ministers).

             (2)  Subsection (1) has effect subject to section 25.

             (3)  In giving a direction under subsection (1), the responsible Ministers must have regard to:

                     (a)  maximising the return earned on the Fund over the long term, consistent with international best practice for institutional investment; and

                     (b)  enhancing the Commonwealth’s ability to:

                              (i)  make grants of financial assistance to eligible higher education institutions in relation to capital expenditure; and

                             (ii)  make grants of financial assistance to eligible higher education institutions in relation to research facilities; and

                     (c)  any Maximum Grants Rules that are in force; and

                     (d)  such other matters as the responsible Ministers consider relevant.

             (4)  Directions under subsection (1) are to be known collectively as the Higher Education Endowment Fund Investment Mandate .

             (5)  A direction under subsection (1) may set out the policies to be pursued by the Future Fund Board in relation to:

                     (a)  matters of risk and return; and

                     (b)  the allocation of financial assets.

A policy relating to the allocation of financial assets must not be inconsistent with a policy relating to matters of risk and return.

             (6)  Subsection (5) does not limit subsection (1).

             (7)  Subsection (5) has effect subject to section 25.

             (8)  The Higher Education Endowment Fund Investment Mandate prevails over subsection (12) to the extent of any inconsistency.

             (9)  The responsible Ministers must not give a direction under subsection (1) that is inconsistent with this Act (other than subsection (12)).

           (10)  A direction under subsection (1) must not take effect before the 15th day after the day on which it is given.

           (11)  A direction under subsection (1) is a legislative instrument.

Note 1:       Section 42 (disallowance) of the Legislative Instruments Act 2003 does not apply to the direction—see section 44 of that Act.

Note 2:       Part 6 (sunsetting) of the Legislative Instruments Act 2003 does not apply to the direction—see section 54 of that Act.

           (12)  In the performance of its Higher Education Endowment Fund investment functions, the Future Fund Board must seek to:

                     (a)  maximise the return earned on the Fund over the long term, consistent with international best practice for institutional investment; and

                     (b)  enhance the Commonwealth’s ability to:

                              (i)  make grants of financial assistance to eligible higher education institutions in relation to capital expenditure; and

                             (ii)  make grants of financial assistance to eligible higher education institutions in relation to research facilities.

Note:          Higher Education Endowment Fund investment function is defined in section 5.

           (13)  Subsection (12) has effect subject to:

                     (a)  this Act; and

                     (b)  a direction under subsection (1).

25   Limitation on Higher Education Endowment Fund Investment Mandate

             (1)  The responsible Ministers must not give a direction under subsection 24(1) that has the purpose, or has or is likely to have the effect, of directly or indirectly requiring the Board to:

                     (a)  invest an amount standing to the credit of the Fund Account in a particular financial asset; or

                     (b)  acquire a particular derivative; or

                     (c)  allocate financial assets to:

                              (i)  a particular business entity; or

                             (ii)  a particular activity; or

                            (iii)  a particular business.

             (2)  Paragraphs (1)(a) and (b) do not limit paragraph (1)(c).

26   Future Fund Board to be consulted on Higher Education Endowment Fund Investment Mandate

             (1)  Before giving the Future Fund Board a direction under subsection 24(1), the responsible Ministers must:

                     (a)  send a draft of the direction to the Future Fund Board; and

                     (b)  invite the Future Fund Board to make a submission to the responsible Ministers on the draft direction within a time limit specified by the responsible Ministers; and

                     (c)  consider any submission that is received from the Future Fund Board within that time limit.

             (2)  If:

                     (a)  the responsible Ministers give the Future Fund Board a direction under subsection 24(1); and

                     (b)  the Future Fund Board made a submission to the responsible Ministers on a draft of the direction within the time limit specified by the responsible Ministers;

the submission is to be tabled in each House of the Parliament with the direction.

Note:          For tabling of the direction, see section 38 of the Legislative Instruments Act 2003 .

             (3)  A time limit specified under this section must be reasonable.

27   Compliance with Higher Education Endowment Fund Investment Mandate

             (1)  The Future Fund Board must take all reasonable steps to comply with the Higher Education Endowment Fund Investment Mandate.

             (2)  As soon as practicable after the Future Fund Board becomes aware that it has failed to comply with the Higher Education Endowment Fund Investment Mandate, the Future Fund Board must give the responsible Ministers a written statement:

                     (a)  informing the responsible Ministers of the failure to comply with the Higher Education Endowment Fund Investment Mandate; and

                     (b)  setting out the action that the Future Fund Board proposes to take in order to comply with the Higher Education Endowment Fund Investment Mandate.

             (3)  If the responsible Ministers are satisfied that the Future Fund Board has failed to comply with the Higher Education Endowment Fund Investment Mandate, the responsible Ministers may, by written notice given to the Future Fund Board, direct the Future Fund Board:

                     (a)  to give the responsible Ministers, within a period specified in the notice, a written explanation for the failure to comply with the Higher Education Endowment Fund Investment Mandate; and

                     (b)  to take action specified in the notice, within a period specified in the notice, in order to comply with the Higher Education Endowment Fund Investment Mandate.

             (4)  The Future Fund Board must comply with a direction under subsection (3).

             (5)  A failure to comply with:

                     (a)  the Higher Education Endowment Fund Investment Mandate; or

                     (b)  a direction under subsection (3);

does not affect the validity of any transaction.

             (6)  A direction under subsection (3) is not a legislative instrument.

28   Future Fund Board must not trigger the takeover provisions of the Corporations Act 2001

             (1)  Subsections 606(1A) and (2A) and section 611 of the Corporations Act 2001 do not apply to an acquisition by the Future Fund Board if the acquisition is the result of the performance by the Future Fund Board of its Higher Education Endowment Fund investment functions.

             (2)  A failure by the Future Fund Board to comply with section 606 of the Corporations Act 2001 (as modified by this section) does not affect the validity of any transaction.

Note:          See also section 39 of the Future Fund Act 2006 (application of the Corporations Act 2001 ).

29   Borrowing

             (1)  The Future Fund Board must not borrow money for a purpose in connection with the Fund unless the borrowing is authorised by subsection (2) or (3).

             (2)  The Future Fund Board is authorised to borrow money for a purpose in connection with the Fund if:

                     (a)  the purpose of the borrowing is to enable the Future Fund Board to cover settlement of a transaction for the acquisition of one or more financial assets; and

                     (b)  at the time the relevant acquisition decision was made, it was likely that the borrowing would not be needed; and

                     (c)  the period of the borrowing does not exceed 7 days; and

                     (d)  if the borrowing were to take place, the total amount borrowed by the Future Fund Board would not exceed 10% of the balance of the Fund.

             (3)  The Future Fund Board is authorised to borrow money for a purpose in connection with the Fund if the borrowing takes place in such circumstances (if any) as are specified in the regulations.

30   Higher Education Endowment Fund investment policies

             (1)  The Future Fund Board must formulate written policies to be complied with by it in relation to the following matters in connection with the Fund:

                     (a)  the investment strategy for the Fund;

                     (b)  benchmarks and standards for assessing the performance of the Fund;

                     (c)  risk management for the Fund;

                     (d)  a matter relating to international best practice for institutional investment;

                     (e)  a matter specified in the regulations.

Note:          For variation and revocation, see subsection 33(3) of the Acts Interpretation Act 1901 .

             (2)  The Future Fund Board must ensure that policies formulated under subsection (1) are consistent with the Higher Education Endowment Fund Investment Mandate.

Publication of policies

             (3)  The Future Fund Board must cause copies of policies formulated under subsection (1) to be published on the Internet.

             (4)  The Future Fund Board must ensure that the first set of policies formulated under subsection (1) is published on the Internet as soon as practicable after the commencement of this section.

Review of policies

             (5)  The Future Fund Board must conduct periodic reviews of policies formulated under subsection (1).

             (6)  If there is a change in the Higher Education Endowment Fund Investment Mandate, the Future Fund Board must review any relevant policies formulated under subsection (1).

Compliance with policies

             (7)  The Future Fund Board must take all reasonable steps to comply with policies formulated under subsection (1).

             (8)  A failure to comply with a policy formulated under subsection (1) does not affect the validity of any transaction.

Policies

             (9)  A policy formulated under subsection (1) is not a legislative instrument.

31   Derivatives

             (1)  The Future Fund Board may acquire a derivative for the purpose of:

                     (a)  protecting the value of an investment of the Fund (other than a derivative); or

                     (b)  protecting the return on an investment of the Fund (other than a derivative); or

                     (c)  achieving indirect exposure to financial assets (other than derivatives) for a purpose in connection with the Fund; or

                     (d)  achieving transactional efficiency for a purpose in connection with the Fund;

but must not acquire a derivative for the purpose of:

                     (e)  speculation; or

                      (f)  leverage.

             (2)  The acquisition of a derivative under subsection (1) must be consistent with the investment strategy embodied in a policy formulated by the Future Fund Board under subsection 30(1).

             (3)  A derivative acquired under subsection (1) is to be held in the name of the Future Fund Board.

             (4)  A derivative acquired under subsection (1) is taken to be an investment of the Fund.

32   Additional financial assets

                   If, as a result of:

                     (a)  the Future Fund Board’s holding of an investment of the Fund; or

                     (b)  the exercise of any rights or powers conferred on the Future Fund Board in its capacity as the holder of an investment of the Fund;

the Future Fund Board becomes the holder of a financial asset, that financial asset is taken to be an investment of the Fund.

33   Securities lending arrangements

             (1)  The Future Fund Board may enter into securities lending arrangements for a purpose in connection with the Fund.

             (2)  Any money received by the Future Fund Board under a securities lending arrangement entered into under subsection (1) is to be credited to the Fund Account.

             (3)  To avoid doubt, a securities lending arrangement entered into under subsection (1) may provide for the Future Fund Board to realise an investment of the Fund.

             (4)  If, as the result of the operation of a securities lending arrangement entered into under subsection (1), the Future Fund Board becomes the holder of a financial asset, that financial asset is taken to be an investment of the Fund.

34   Investment managers

             (1)  The Future Fund Board may engage one or more investment managers for purposes in connection with the Fund.

             (2)  The Future Fund Board must not:

                     (a)  invest amounts under subsection 22(1); or

                     (b)  acquire derivatives under subsection 31(1); or

                     (c)  enter into a securities lending arrangement under subsection 33(1); or

                     (d)  realise financial assets that are investments of the Fund;

unless the Future Fund Board does so:

                     (e)  through an investment manager engaged by the Future Fund Board under subsection (1) of this section; or

                      (f)  in a manner approved, in writing, by the responsible Ministers.

             (3)  The Future Fund Board must ensure that any investment manager engaged by the Future Fund Board under subsection (1) operates within this Act.

             (4)  The Future Fund Board must ensure that any investment manager engaged by the Future Fund Board under subsection (1) reports to:

                     (a)  the Future Fund Board; and

                     (b)  the Agency;

on the state of the investments of the Fund at such times and in such manner as the Future Fund Board determines.

35   Custody of securities

                   Section 40 of the Financial Management and Accountability Act 1997 does not apply to an investment of the Fund.

36   Refund of franking credits

                   If:

                     (a)  the Future Fund Board receives a refund of a tax offset under the Income Tax Assessment Act 1997 ; and

                     (b)  the tax offset is attributable to an investment of the Fund;

the refund is to be credited to the Fund Account.

Note 1:       See also section 84B of the Future Fund Act 2006 .

Note 2:       For refunds of tax offsets, see Division 63 of the Income Tax Assessment Act 1997 .

37   Realisation of non-financial assets

             (1)  If an asset held by the Future Fund Board as an investment of the Fund ceases to be a financial asset:

                     (a)  the Future Fund Board must realise the asset as soon as practicable after the Future Fund Board becomes aware of the cessation; and

                     (b)  this Act (other than this section) applies in relation to the asset (including in relation to the realisation of the asset) as if the asset had remained a financial asset, and an investment of the Fund, until the realisation.

             (2)  If an asset acquired by the Future Fund Board, purportedly as an investment of the Fund, is not a financial asset:

                     (a)  the Future Fund Board must realise the asset as soon as practicable after the Future Fund Board becomes aware that the asset is not a financial asset; and

                     (b)  this Act (other than this section) applies in relation to the asset (including in relation to the realisation of the asset) as if the asset had been a financial asset, and an investment of the Fund, from the time of its acquisition by the Future Fund Board until the realisation.

38   Additional function of the Future Fund Board

                   The functions of the Future Fund Board include the function of investing amounts in accordance with this Act.