G/3.2 Investments
Policy Owner | Executive Director, Finance and Deputy Chief Financial Officer |
Approval Date | 14/12/2021 |
Approval Authority | Council |
Date of Next Review | 31/12/2024 |
3.2.1 Purpose
3.2.2 Application
3.2.3 Roles and responsibilities
3.2.4 Investment purpose
3.2.5 Investment principles
3.2.6 Long term investment model
3.2.7 Investment strategy
3.2.8 Investment considerations
3.2.9 Statement of responsible investment
3.2.10 Investment parameters and credit requirements
3.2.11 Investment management
3.2.12 Performance and reporting
3.2.13 Definitions
3.2.14 Delegations
Related Documents
Modification History
3.2.1 Purpose
This policy outlines how the University undertakes financial investments to support its strategic goals across education, research and community.
3.2.2 Application
This policy applies to the investment of all surplus funds held by the University and undertaken in accordance with the Queensland University of Technology Act 1998, Statutory Bodies (Financial Arrangements) Act 1982 and Financial Accountability Act 2009, and associated regulations and standards.
3.2.3 Roles and responsibilities
Position |
Responsibility |
|---|---|
| Treasury Manager, Finance Business Solutions |
|
| Reconciliation Officer, Finance Business Solutions |
|
| Finance Manager (Accounting, Capital and Equipment) |
|
| Executive Director, Finance and Deputy Chief Financial Officer |
|
| Vice-President (Finance) and Chief Financial Officer |
|
| Risk and Audit Committee (A/3.3) |
|
| Finance and Planning Committee (A/3.5) |
|
3.2.4 Investment purpose
The University holds investments in three separate categories, Short Term Investments, the Long Term Fund and the Endowment Fund. Each of these serve a distinct purpose in helping the University achieve its strategic goals. The investment purpose of each of the categories is described below, with further details regarding each category included in section G/3.2.7 Investment strategy.
Short Term Investments
Ensure there is sufficient liquidity to meet operating expenses over a one to three year time horizon.
Long Term Fund
The Long Term Fund exists to help grow QUT’s balance sheet and to increase its financial strength over the long term. This provides QUT with a greater ability to finance long term strategic initiatives that are aligned with its mission, which is to provide transformative education and research relevant to our communities.
Endowment Fund
The Endowment Fund exists to provide for scholarship and grant payments for current and future beneficiaries of the endowments into perpetuity.
3.2.5 Investment principles
Investment principles (or beliefs) comprise what we know, or think we know, about the factors that influence investment returns. Some investment principles can be stated with a high degree of certainty, whilst others are more open to debate or interpretation. Collectively, they reflect the views held by the University and so they should guide decision making and shape the University’s approach to investing, with particular regards to the assets in the Long Term Fund and the Endowment Fund. Having a well-thought-out set of explicit principles will help guide the University’s investment decision making by enhancing discipline and consistency, efficiently settling differences of opinion and improving transparency.
- Strong governance arrangements enable QUT to make good investment decisions, consistent with the purpose of its funds.
- QUT can better manage risk and enhance portfolio efficiency by diversifying across a range of asset classes.
- QUT adopts a long term view when determining the appropriate investment strategy for its funds.
- The investment strategy should focus on maximising the expected return (for a given level of risk) rather than minimising risk (for a given or expected rate of return).
- QUT recognises its responsibility to invest sustainably, by integrating Environmental, Social and Governance considerations into the management of its funds.
- QUT’s fund manager(s) can employ dynamic management to assist the funds to take advantage of changing market conditions and opportunities.
- QUT’s fund manager(s) can employ active management where it is expected to outperform a passive approach, net of all costs.
Whilst the implementation of the University’s investment strategy is largely beyond its control, given the outsourced nature of the investment model, the funds should still be invested in a way that is consistent with the University’s investment principles. Therefore, the University should clearly communicate its investment principles with its fund manager(s) and use these to assess and monitor the alignment of the fund manager(s) investment approach with its beliefs.
3.2.6 Long term investment model
The University applies an outsourced investment model to the long term investment categories by engaging external professional investment managers to actively manage its long term investments. The University has adopted this model to ensure the efficient implementation of the long term investment funds and to reduce the complexity involved with managing the investment portfolios internally.
The outsourced investment model sees the University maintaining responsibility for setting the investment purpose, investment principles and the investment strategy (with the appropriate advice from external advisors and the fund managers). However, the University will delegate the portfolio management and implementation of the Long Term Fund and the Endowment Fund, with the University oversighting and monitoring the Fund Manager’s performance and continued alignment with the University’s investment principles and desired investment strategy.
The following table summarises the roles and responsibilities of QUT and its Fund Manager.
Task |
Advise/input |
Decide/responsible |
Investment Purpose and Principles |
External Advisor (if required) |
Council / Finance and Planning Committee |
Investment strategy |
External Advisor / Fund Manager |
Council / Finance and Planning Committee |
Portfolio design |
External Advisor / Fund Manager |
Council / Finance and Planning Committee |
Portfolio management |
- |
Fund Manager |
Implementation |
- |
Fund Manager |
Investment Reporting |
Fund Manager |
QUT Management / Finance and Planning Committee |
Monitoring |
- |
QUT Management / Finance and Planning Committee |
3.2.7 Investment strategy
QUT’s investable funds are to be aligned to the liability profile and cash flow (liquidity) needs of the University, and fall within the following categories:
Short Term Investments
| Purpose | Ensure there is sufficient liquidity to meet operating expenses over a one to three year time horizon In the event that the University experiences financial distress, the Short Term Investments are intended to provide a source of contingent funding to the operational cash and working capital of the University |
Time horizon |
1 year |
Return objective |
An annual absolute return figure set each year |
| Risk objective | No negative returns in any given year |
| Liquidity profile | 100% liquid investments |
| Source and application of funds | Funds sourced from operating revenue and used for operating expenses Included in normal operating budget requirements and reviewed on an annual basis to ensure the level of cash reserves is appropriate |
Investment arrangement |
Queensland Treasury Corporation (QTC) or placed in short term cash investments with appropriately rated financial institutions within the approved investment parameters outlined in Section G/3.2.10 |
Long Term Fund
| Purpose | The Long Term Fund exists to help grow QUT’s balance sheet and to increase its financial strength over the long term. This provides QUT with a greater ability to finance long term strategic initiatives that are aligned with its mission, which is to provide transformative education and research relevant to our communities The Long Term Fund is not expected to be required to fund any unexpected shortfall in the University’s operating budget, as the Short Term Investments should be sufficient as a contingent funding source in most cases However, there exists a scenario where the Short Term Investments are completely depleted, and no other funding arrangement are available, and the Long Term Fund needs to be drawdown for contingent funding. Whilst this is a very unlikely scenario, QUT recognises this as a potential use of the Long Term Fund Therefore, the University will maintain a long term mindset when making investment decisions regarding the Long Term Fund but will maintain flexibility regarding its potential application. This will ensure efficient and consistent decision making, in the best interest of the University, given the financial circumstance at any given point |
Time horizon |
10 years |
Return objective |
CPI + 3.5% per annum over rolling 10 year periods |
| Risk objective | Expected Tail Loss between -15.0% to -20.0% (in any given year) |
| Risk profile | Approximately 90% allocation to Growth Assets |
| Liquidity profile | No more than a 20% allocation to illiquid investments |
| Source and application of funds | Current investment balances plus all revenue reinvestment as well as operating margin from annual university budget The Long Term Fund does not have a specified drawdown profile, but rather will be used to finance long term strategic initiatives as required by the University. While this does create some uncertainty as to when a drawdown may occur and also how much could be withdrawn, it does not preclude the University from maintain a long term horizon and mindset to the investment strategy |
Investment arrangement |
Placed with the approved investment manager (currently QIC) utilising a diversified strategic asset allocation, matched to the Long Term Fund’s investment strategy |
Endowment Fund
| Purpose | The Endowment Fund exists to provide for scholarship and grant payments for current and future beneficiaries of the endowments into perpetuity |
Time horizon |
15 years |
Return objective |
CPI + 4.5% per annum over rolling 15 year periods |
| Risk objective | Expected Tail Loss between -17.5% to -22.5% (in any given year) |
| Risk profile | Approximately 100% allocation to Growth Assets |
| Liquidity profile | No more than a 40% allocation to illiquid investments |
| Source and application of funds | Funds are predominately sourced from philanthropy and QUT matching donations where applicable. The Endowment Fund is comprised of a number of underlying endowments. The majority of the underlying endowments are intended to be invested in perpetuity, while a smaller number of endowments are expected to drawn down over a long time horizon (10 to 20 years) It is recognised that the Endowment Fund will be utilised to support the University’s scholarship and grant distributions for the foreseeable future. Currently, the University’s total scholarship and grant spending is beyond what the Endowment Fund can support on its own, without reducing the value of the corpus through time, and it is therefore supported by additional funding from the operating budget Until such time that the Endowment Fund is capable of funding the entire scholarship and grant spending of QUT (without additional support from the operating budget), at an annual spending rate aligned with the Fund’s real return objective, the investment strategy and level of spending of the Endowment Fund will recognise the supplementary funding of scholarships and grants from the operating budget. Growth in the value of the Endowment Fund may then be generated by additional donations to the University or by organic growth in the corpus should the investment returns be greater than the annual spending from the Endowment Fund
|
Investment arrangement |
Placed with the approved investment manager (currently QIC) utilising a diversified strategic asset allocation, matched to the Endowment Fund’s investment strategy |
3.2.8 Investment considerations
Maintenance of liquidity
The University maintains a deposit and withdrawal account with an approved financial institution for its day-to-day operating transactions, pursuant to section 31 of the Statutory Bodies (Financial Arrangements) Act 1982 (SBFA Act). In addition to the balances held in its bank account for routine operating requirements, the investment portfolio will maintain sufficient liquidity to meet all reasonably anticipated operating cash flow requirements of the University, as and when they fall due, without incurring significant transaction costs due to being required to sell an investment. For these purposes, illiquid investments are defined as investments that are not publicly traded in sufficient volume to facilitate, under most market conditions, prompt sale without severe market price effect.
In the event that the University experiences financial distress or a specific liquidity event occurs with regards to the operational budget, it is anticipated that the following liquidity hierarchy will be utilised to address the liquidity stress:
- Operating Cash / Working Capital
- Short Term Investments
- Borrowings
- Long Term Fund
Preservation of capital and purchasing power
Preservation of capital and purchasing power are key objectives of the investment portfolio. Short term investments are to be managed in a manner that seeks an appropriate return whilst ensuring security of the principal balance. Long term investments seek to earn an appropriate return that also maintains the purchasing power of the overall portfolio for future generations. This requires managing credit and interest rate risk within given risk management parameters and avoiding any transactions that would prejudice confidence in the University or its associated entities.
Credit risk
The Treasury Manager will evaluate and assess credit risk prior to investment. Credit risk is the risk of loss due to the failure of an investment issuer or guarantor. The Treasury Manager will minimise credit risk in the investment portfolio by pre-qualifying all transactions including the brokers / securities dealers with which the University does business, diversifying the portfolio and limiting transactions to secure investments.
Interest rate risk
The Treasury Manager shall seek to minimise the risk of a change in the market value of the portfolio because of a change in interest rates, by considering the cash flow requirements of the University and structuring the portfolio accordingly. This will avoid having to sell securities prior to maturity in the open market. Secondly, interest rate risk can be limited by investing in shorter term securities.
Trust monies
Trust monies must be invested in accordance with the requirements of the SBFA Act and the QUT Act (section 52). Trust monies may be included with other University monies in a common investment fund and income distributed from this fund among the participants in the common fund will be in direct proportion to each contribution.
Trust monies shall be held in capital secure and liquid investment types.
Direct investments
QUT may on occasions receive direct investments such as shares or property through donations, bequests or as a result of research and commercialisation activities. The University's intention is to divest itself of such investments as soon as practicable, though in limited circumstances direct investments may be held for strategic purposes. All sales should be conducted with the objective of maximising investment returns for the University and ensuring arms-length transactions are maintained.
Derivatives (hedging foreign currency exchange rate risk)
The University may enter into derivative transactions, for known purchases only, to hedge against foreign currency exchange rate risk subject to the requirements of the SBFA Act (Part 7). Speculative transactions are not permitted.
Foreign currency transactions are generally performed based on a daily spot rate provided by the University's foreign currency supplier. In limited circumstances large planned transactions, such as annual library transactions or large equipment purchases, may need to be paid in foreign currencies. These transactions may be hedged to offset exchange rate variations.
Each transaction requires prior approval from the Executive Director, Finance and Deputy Chief Financial Officer, and must be reported each month to the Treasurer of Queensland with sufficient details as required in the SBFA Act (Section 55). All hedging transactions will be included in the regular report to Finance and Planning Committee.
3.2.9 Statement of responsible investment
As a major Australian university, QUT ambitiously positions itself as the university for the real world of today and tomorrow. We recognise our important responsibility to be an institution that is not only environmentally and socially responsible but also financially sustainable.
In practical terms, this means that QUT is committed to an orderly and considered transition away from investment in fossil fuel companies while simultaneously ensuring that QUT continues to build the broader funding base essential for our future.
In line with this commitment, we have reviewed QUT's investments relative to climate risk and instituted changes to the University's investment strategy.
QUT steps toward social and responsible investment
- QUT has no fossil fuel direct investments.
- While we recognise that the fossil fuel industry is a significant contributor to Queensland's regional economy and presents a significant opportunity for QUT to influence this sector through the provision of leadership education and research, we are working with our independent investment manager, Queensland Investment Corporation (QIC), to manage investments so that no fossil fuel investments of material significance form part of the QUT investment portfolio.
- We have engaged Queensland Investment Corporation (QIC) as external funds manager to ensure that QUT's investment pool is directed to ethical and appropriate investments within a framework of responsibility relative to climate risk.
- Queensland Investment Corporation (QIC) became a signatory in 2008 to the United Nations-backed Principles for Responsible Investment Initiative (UNPRI). They report annually on their environmental, social and corporate governance (ESG) activities.
- Finance and Planning Committee takes an active role in monitoring and reporting on QUT's revised investment strategy in order to ensure sustained financial return in line with social and responsible investment.
3.2.10 Investment parameters and credit requirements
For investments at call or for a fixed term of not more than one year the University is permitted, under sections 44 and 45 of the SBFA Act, to use investments with a financial institution rating by Standard and Poor's (Australia) Pty Ltd (S&P) of A1+, A1, Aam or AAAm.
For investments at call or for a fixed term of greater than one year but not more than three years the University is permitted, under section 45 of the SBFA Act, to use investments with a financial institution rating by S&P of AA, AA+ or AAA.
The following tables show the credit ratings and counterparty limits for the University.
Short Term Rating (S&P) |
Institution limit |
Maximum % of Total Portfolio |
QTC/QIC |
100% |
100% |
A1+ |
40% |
100% |
A1 |
20% |
50% |
A2 |
nil |
nil |
Long Term Rating (S&P) |
Institution limit |
Maximum % of Total Portfolio |
QIC |
100% |
100% |
AAA to AA |
40% |
100% |
AA- or lower |
nil |
nil |
For the purposes of QUT's investment portfolio, the percentage limits apply effective from the date of purchase as a percentage of the market value of the portfolio.
On an annual basis Finance and Planning Committee will endorse, on recommendation from the Executive Director, Finance and Deputy Chief Financial Officer, a list of financial institutions meeting the above requirements to which QUT’s investments must be confined.
3.2.11 Investment management
Prudent person standard
The standard of prudence must be used when managing the University's investment portfolio. Investments are to be managed with the care, diligence and skill that a prudent person would exercise in managing the affairs of other persons. This includes having in place appropriate reporting requirements to ensure that investments are reviewed and monitored regularly.
Balance Sheet management
Council on the advice of Finance and Planning Committee, annually approves a rolling three-year Consolidated Operating Budget and five-year Capital Management Plan (CMP). Council considers as part of the Budget process, the mix of assets on the balance sheet the University is expected to hold into the future. Assets fall within various categories but include primarily:
- Tangible assets - property, plant and equipment
- Intangible assets - technology developments
- Financial assets - short term and long term investments held in financial institutions and based on financial markets.
Council endeavours to strategically position QUT with an operating margin and these surpluses become part of the financial assets which provide the University with reserves to deliver strategic goals over a five year Capital Management Plan, as well as manage unexpected, short term internal or external events.
Council may periodically, after considering strategic and environmental risks and with appropriate advice provided by management, choose to materially alter the balance sheet asset mix in order to deliver QUT’s strategic goals. This may include various financing options including but not limited to: utilsing existing cash reserves; liquidating financial investments; and various leasing and other external borrowing options.
Treasury management
The Executive Director, Finance and Deputy Chief Financial Officer, is responsible for overseeing the management of investment categories. This strategy ensures an appropriate return on investment aligned to the University's capital requirements and includes asset allocations, financial institution and financial instrument selection.
The QUT Treasury Manager is required to manage the University's investment portfolio in accordance with this policy. Documented treasury procedures must incorporate appropriate internal controls and segregation of duties. The investment quantum and duration decisions are aligned to the University's short term, long term, and endowment cash flow requirements. Information is sourced across three timeframes for informing cash flow and investment management decisions, whilst assessing short term liquidity needs and longer term balance sheet considerations:
- Yearly - where the yearly cash requirement is projected for five years ahead. This information is sourced from the three-year Consolidated Operating Budget and five-year Capital Management Plan (CMP).
- Monthly - where the monthly cash requirement is projected for 12 months ahead. This information is sourced from the Governance and Performance and Finance departments.
- Daily - where a daily cash requirement is projected for 30 days ahead. This information is prepared with inputs from key areas of payroll, accounts payable, accounts receivable and capital, investments and loans.
Investments shall be made at the most advantageous rate available at the time for the particular investment type, and in a way that is considered the most appropriate given the circumstances.
With respect to any new investment within the underlying investment pools offered by Queensland Investment Corporation (QIC), approval from the Executive Director, Finance and Deputy Chief Financial Officer, alone is sufficient, as QIC as the investment manager' has already been approved for investment purposes by Finance and Planning Committee.
Transfers of monies from the University's accounts require sign-off from two authorised signatories.
Investment fund managers
The University applies an outsourced investment model to long term investment categories by engaging external professional investment managers to actively manage its long term investments. The SBFA Act restricts the appointment of long term investment managers to Queensland Investment Corporation (QIC) and Queensland Treasury Corporation (QTC) without separate approval by the Queensland State Treasurer.
QUT has retained QIC and QTC as investment and cash fund managers, and may engage other fund managers from time to time subject to the appropriate approvals.
QUT has Category 3 investment power under the SBFA Act and Regulation, which lists approved investment arrangements managed or offered by QTC and QIC at Schedule 7 Part 1 and 2. QUT also has access to additional QIC investment products where approved by the Queensland State Treasurer.
At times where markets are highly volatile and recognising there will always be peaks and troughs over the longer investment cycle, the University will rely on its long term investment manager, QIC, to dynamically position the long term investment portfolio within Strategic Asset Allocation ranges agreed for the relevant investment pools.
3.2.12 Performance and reporting
Performance measurement
The short term investments will be benchmarked against an appropriate Queensland Treasury Corporation index.
The long term investment and endowment portfolios shall be measured using the market value of the portfolio (including withdrawals and deposits, and total performance of the portfolio), compared to the Consumer Price Index (CPI) plus a benchmark target return. The University's Investment Manager (QIC) will measure and benchmark themselves against the University’s chosen reference portfolio for each of the Long Term Fund and the Endowment Fund.
Finance and Resourcing Planning will conduct periodic meetings throughout each year with the QIC investment team to ensure the quantitative and qualitative aspects of the manager are closely monitored and are tracking to expectations.
Monitoring of Fund Manager
The University will monitor the Fund Manager to ensure continued alignment of their investment approach and implementation of the long term investments with the University’s investment principles and the investment strategy of the Long Term Fund and the Endowment Fund.
Annually, analysis of the investment strategy and particularly the forward looking risk and return expectations of each fund should be provided by the Fund Manager.
Periodically, the University should also undertake a broader review of the Fund Manager to ensure the alignment of the Fund Manager’s investment approach with the University’s investment principles and assess the Fund Manager’s ability to effectively manage and implement the Long Term Fund and the Endowment Fund in line with their respective investment strategy.
Responding to abnormal or extraordinary events
Where issues are identified outside of the normal budget cycles, arising from either internal requirements or external influences, and have the capacity to materially impact on the University's plans and budgets, Finance and Planning Committee may review QUT's investments strategy to facilitate alignment and achievement of the University's operational and strategic plans.
Breach of policy
Any breach of this investment policy must be reported to the Executive Director, Finance and Deputy Chief Financial Officer immediately. Action must be taken to resolve the breach within 24 hours of the breach being detected. The Vice-President (Finance) and Chief Financial Officer will report the breach and actions taken to address the breach to the next meeting of Risk and Audit Committee.
Reporting
The Vice-President (Finance) and Chief Financial Officer reports to:
- Finance and Planning Committee, periodically throughout each year, the investments and financing strategies and performance.
- Risk and Audit Committee, at least annually, on compliance with relevant legislation and the University's investment policy.
Finance and Planning Committee and Risk and Audit Committee reports to Council on investment issues relevant to their terms of reference as required.
3.2.13 Definitions
Investments are defined as arrangements that are undertaken or acquired with the expectation of achieving a financial return through interest, profit or capital growth.
Growth Assets are defined as equities, property, infrastructure, non-investment grade credit, and other alternatives.
Defensive Assets are defined as cash, fixed income and investment grade credit.
Illiquid Investments are defined as investments that are not publicly traded in sufficient volume to facilitate, under most market conditions, prompt sale without severe market price effect and cannot be liquidated to cash within a six month time horizon.
Expected Tail Loss is a downside risk metric which represents the expected return when financial markets are very adverse. It is equal to the average return in the bottom 5% of return scenarios.
Risk Profile defines the investment portfolios percentage allocation to growth assets vs defensive assets. As such, an allocation to growth assets is used as a proxy for the “riskiness” of the portfolio. As the percentage of growth assets increases so does the risk of the portfolio.
Reference Portfolio is a portfolio consisting entirely of passively managed listed equities and bonds, which have been set to target the desired level of risk in a portfolio.
Strategic Asset Allocation is the portfolio’s target allocation for each asset class, set the align with the investment strategy of the fund.
Dynamic Management involves adjusting the asset allocation away from the strategic asset allocation to take advantage of changing market conditions and opportunities, in order to reduce risk or improve expected returns.
Active Management - Investment Managers are focused on employing skill to add value (e.g. Stock Selection) to generate returns in excess of the market.
Fund Manager refers to the primary provider of outsourced investment services, including portfolio management and implementation.
Investment Manager refers to underlying investment management organisations selected by the Fund Manager to implement specific asset class allocations or investment mandates.
3.2.14 Delegations
Refer to Register of Authorities and Delegations (VC145, VC146) (QUT staff access only).
Related Documents
MOPP G/3.4 Borrowings
QUT Finance Manual (QUT staff access only)
Financial Accountability Act 2009
Financial and Performance Management Standard 2009
Queensland University of Technology Act 1998 (QUT Act)
Statutory Bodies Financial Arrangements Act 1982 (SBFA Act)
Statutory Bodies Financial Arrangements Regulation 2007
Modification History
|
Date |
Sections |
Source |
Details |
| 14.12.21 | All | Council | Periodic review – revised policy |
| 05.05.21 | G/3.2.3, G/3.2.4, G/3.2.5, G/3.2.6, G/3.2.7 | Director, Governance, Legal and Performance | Minor editorial changes to align with Repositioning QUT for a post-COVID world organisational change - effective 31.01.21 |
| 26.11.19 | All | Vice-Chancellor and President | Revised policy to include department name change from Institutional Planning and Performance to Planning, Reviews and Quality |
| 09.01.19 | G/3.2.6 | Director, Governance and Legal Services | Revised policy to include department name change from Planning and Performance to Institutional Planning and Performance |
| 10.07.18 | All | Vice-Chancellor and President | Revised policy to include department name changes - Corporate Finance to Finance Resource Management and Planning and Budget to Planning and Performance |
| 12.10.16 | All | Council | Revised policy |
| 07.08.13 | G/3.2.5 | Council | Revised to clarify investment categories and arrangements |
| 05.12.12 | G/3.2.7 | Council | "Breach of policy" reporting changed from Planning and Resources Committee to Audit and Risk Management Committee |
23.02.11 |
All |
Council |
Revised policy |
09.12.09 |
All |
Council |
Revised policy |
|
13.09.06 |
All |
Acting Chair, Planning and Resources Committee |
Revised policy (endorsed by Planning and Resources Committee 30.08.06) |
|
06.09.05 |
All |
Executive Director, Finance and Resource Planning |
Policy reviewed (minor amendment to G/3.2.5 to reflect current reporting processes) and renumbered (formerly G/3.1) |
|
07.07.04 |
All |
Planning and Resources Committee |
Revised policy |