18. The SWF’s investment policy should be clear and consistent with its defined objectives, risk tolerance, and investment strategy, as set by the owner or the governing body(ies), and be based on sound portfolio management principles.
18.1. The investment policy should guide the SWF’s financial risk exposures and the possible use of leverage.
18.2. The investment policy should address the extent to which internal and/or external investment managers are used, the range of their activities and authority, and the process by which they are selected and their performance monitored.
18.3. A description of the investment policy of the SWF should be publicly disclosed.
The NTF Investment policy and strategy (including the risk components) are key to the success of the fund. The Committee, in conjunction with advisers and the international investment manager (Mercer International), work closely with the NTF Committee to establish, continually review and manage a sound and robust investment portfolio within the Investment policy guidelines.
The NTF approved Investment Policy is on http://www.naurugov.nr/government/departments/department-of-finance/intergenerational-trust-fund-for-the-people-of-the-republic-of-nauru.aspx which covers risk (in Section 4) and options (in Section 6) for the NTF investment portfolio.
These Sections include: The Trust Fund Committee will seek to achieve the maximum long-term investment return for its defined tolerance for risk. It is acknowledged that the investments made by the Original Partners and other contributors are subject to risk and that in certain periods this can result in (realised or unrealised) losses. These investment risks include but may not be limited to:
- Market risk, currency risk, interest rate risk, credit (default) risk and Illiquidity risk.
- The Committee expects the Investment Fund to be invested consistent with best practice for sovereign wealth funds.
- The portfolio will not be leveraged.
- Investment risk will be limited by appropriate diversification between and within investment asset classes.
The Committee understands that the Investment Fund has a long-term investment horizon and a high exposure to growth assets is appropriate to generate strong real investment returns. The investment strategy for the Investment Fund will be undertaken in stages outlined in Section 4 of the Investment Policy document and will take into consideration relevant memoranda of understanding, funds under management and market conditions.
The investment policy (in conjunction with the MOU and administrative approval limits) addresses the activities of managers both internal and external to the fund (primarily within Section 3 of the document):
In making decisions on investment strategy, the Committee will have regard to the overall circumstances of the Republic of Nauru and will comply with all applicable legislative requirements.
With respect to asset management, the oversight responsibility of the Trust Fund rests with the Committee composed of individuals whose responsibilities encompass the following:
- Establishing overall objectives and the setting of investment policy;
- Monitoring the management of the Investment Fund’s assets;
- Reviewing the asset allocation mix on a regular basis to ascertain not only that the existing portfolio conforms to the desired targets and ranges, but also that the targets and ranges remain suitable and represent the prudent asset allocation mix for the Investment Fund;
- Monitoring performance to determine whether or not the rate of return objectives is being met and that Policy and guidelines are being followed; and
- Taking appropriate action if objectives are not met or if the policy and guidelines are not followed.