The low interest rate environment continued for 2014. Whilst liquidity declined year-on-year, it remained at very high level as demand for credit was generally subdued. These conditions translated into a challenging investment environment, characterized by tough competition for limited securities, early redemption and refinancing of key accounts at lower rates.
Domestic liquidity closed at $530.8 million compared to $677.1 million last year, while FNPFâ€™s cash holding continued to build up, closing at $645.5 million compared to $404.1 million last year. The high cash holdings, which includes holdings of foreign currencies, were held to finance the acquisition of Vodafone Fiji Limited, which was completed after year end. The Fundâ€™s repeated requests to the Reserve Bank to allow for further investments offshore were not successful.
Long-term bond rates fell significantly during the year, with decreases ranging from 40 basis points to 155 basis points. The 15-year bond rate closed at 4.35 per cent compared to 5.84 per cent at 30 June 2013. This decline affected the reinvestment rate for the Fixed Income portfolio and resulted in lower income. The short-term rates showed slight increases, especially towards the end of the year, as commercial banks sought to lock in liquidity.
The Equities portfolio recorded a decline compared to last year, due to the withdrawal of the proposed investment in Bemobile (PNG) Limited. The funds earmarked for this investment were re-allocated to the offshore term deposits portfolio. During the year, FNPF and Vodafone International Holdings also signed an Agreement for the Sale and Purchase of Shares, which was completed subsequent to the balance date. Other highlights included increased dividends received from major subsidiaries.
The Properties Division adopted an active acquisition strategy, which resulted in acquisition of Mercury House and land in Vatuwaqa.
The Fund also explored several privatisation opportunities announced by Government as part of its budget financing. Although significant progress were achieved in two privatisation process, we were not able to bring any transaction to closure by year end.