Asset Performance and Treasury
The Fund's total Income for the financial year was $331.2 million, compared with $310.0 million in 2015, an increase of approximately $21.2 million.
On asset class levels, all asset classes saw increases in income compared to last year. The income from Fixed Income portfolio increased compared with last year due to increased investments in fixed income securities and rising interest rates. Similarly, the commercial lending portfolio investment income also increased due to new investments.
Property rental income also increased as vacancy rates decreased, rental reviews carried out to align to higher market rates. Income from properties acquired in 2015 also started to stream in.
The Equities portfolio saw increased dividends being paid out from subsidiaries such as ATH and HFC, as well as from new investee companies such as Vision, Ports and BSP.
Cash at Bank interest income was at a record high due to competitive rates negotiated on all current accounts with Commercial Banks.
During the year, the Fund undertook a market valuation exercise for its investment properties, which resulted in the increase in market value of properties by $13.8 million. Realized capital gains of approximately $6.1 million was also booked mostly due to trading activities conducted on the overseas equities portfolio. The portfolio also booked an unrealized capital gain due increases in the share price of these equities.
The net return on investment was 6.9%, compared with 5.9% in 2015. This enabled the Fund to credit 6.25 per cent to the members' accounts.
FIXED INCOME PORTFOLIO
The Fixed Income portfolio remained the strength of the investment portfolio, making up of more than 77% of the total investment portfolio. While 2015 saw a rise in liquidity and decline in interest rates, 2016 saw the trend reversed. Liquidity in the financial system decreased from $680 million in 2015 to close at $496 million in 2016, leading to increase in interest rates in all tenors of public sector securities.
The Government bonds portfolio increased from $1.98 billion in 2015 to close at $2.11 billion in 2016. Total investments in Government bonds for the review period was $235.07 million while maturities totalled $96.56 million. The increase in investments came directly as a result of the government's increased appetite for long term debt to fund rehabilitation works post TC Winston.
New investments in treasury bills totalled $30 million while maturities totalled $33.88 million, bringing the portfolio closing
balance to $9.79m from $23.4m at the start of the year.
The quasi-government securities portfolio consists of borrowings by statutory institutions such as Fiji Development Bank (FDB), Housing Authority (HA), Fiji Electricity Authority (FEA) and Fiji Sugar Corporation (FSC). The investments in these bodies are guaranteed by the Government. The portfolio closed at $137.3million compared to $107.3M last year.
The increase in portfolio was a result of new investments in FDB and FSC, with maturities noted in HA and FEA balances.
Local Term Deposits
Local term deposits decreased from a total of $590.1 million last year to close at $412.9 million this year. The decrease was due to re-investment of maturing deposits into higher yielding Government Bonds.
The RBF approved a total of FJ$120.0 million in the 2016 financial year. Out of this approval $83.1 million was utilized for offshore investments, while FJ$36.9 million will be remitted in the next financial year. The Fund continued to actively engage with the RBF towards realizing its offshore target.
Fiji Government US Denominated bonds
During the year, the Fiji Government early redeemed its US$250million bond that was floated in 2012, of which FNPF held US$36.7million. The Government simultaneously launched a new 5-year parcel of US$200 million which will mature in 2020.
FNPF participated in this early recall program as well as bidding for the new parcel. As a result, FNPF was allotted a total of US$50million while picking up an additional US$10.2 million in the secondary market.
Part of the new funds approved by RBF for offshore investments were utilized for this investment. Due to these transactions, the portfolio closed at $122.9 million compared with $75.5 million last year.
Foreign Term Deposits & Cash
The Foreign Term Deposit and cash portfolio closed at $221.6million compared with $98.7 million last year. The increase was due to the remittance of new funds approved by RBF.
The market continued to pose challenges to commercial lending portfolio as strong competition from commercial banks kept the lending rates low. Total interest income earned in the year was $18.5 million compared with $17.7million last year. The commercial lending portfolio increased from $387 million to $489.5 million which apart from new loans was also a result of impairment provision write backs of about $13.6 million.
New loans during the year included Momi Bay Resort Limited for the construction of the Marriott Hotel, FNPF Hotel Resorts Limited on the refurbishment of the Holiday Inn, completion of drawdowns by FEA for the purchase of 35 MW Heavy Fuel Oil Generators and the refinancing of a FEA Bond and Fiji Airways Limited for financing the purchase of two ATR aircrafts.
The Fund actively pursued growth opportunities to diversify its portfolio, both locally and offshore. During the financial year, the Fund invested circa $194 million in the equity market as well as finalised prospective investment to the worth of over $180 million in offshore equities but yet to be invested during the financial year.
The local portfolio closed at $802.4 million compared with $576.9 million in 2015. This growth is a result of new investments in Fiji Ports Corporations Limited and Vision Investments Limited plus additional acquisitions in Momi Bay Resort Limited, Amalgamated Telecommunications Holdings Limited and HFC Bank, as well as positive movements from listed shares on the South Pacific Stock Exchange.
The local equities portfolio generated around $56.8 million in dividend income in FY16 compared with $55.3 million last financial year which included a one-off dividend income of $11 million from FNPF Investments Limited.
The Offshore Core Australian Equities portfolio managed by Martin Currie Australia continued its strong performance, generating a dividend income of about $6 million compared with $4.5 million in FY2015.
During the year, the Fund re-balanced the Core Australian Equity portfolio with a divestment of A$30M which was re-allocated into the Martin Currie Real Income Fund. The portfolio rebalancing was undertaken to mitigate downside capital risk exposure given the assessment of the market conditions.
The Fund also acquired $4.4M additional shares in Bank of South Pacific which also recorded an increase in dividends in 2016. The Board also approved the investment commitments of AUD$50 million into 'The Infrastructure Fund' managed by Hastings and US$50million into IFC's Emerging Asia Fund. Drawdowns will commence in FY2017.
As an active participant in the financial market in Fiji, the Fund has to ensure it leverages itself with effective Treasury management strategies and practices. The financial year ended June 2016 witnessed achievement of key milestones with continuous changes in the business environment. Essentially, the Fund's Treasury function facilitated effective management of funds whilst deploying it towards investments locally and internationally.
Knotted with several new investments within the financial year has been management of investment funding. Challenges were faced as the overall general liquidity levels in the economy's financial system decreased from a total of $680 million in July 2015 to $496 million in June 2016. The payout resulting from TC Winston withdrawals further decreased the Fund's holdings from $656.2million in FY2015 to $337 million at end of this financial year. This was the the direct impact of TC Winston. The overall decrease in cash balances, however, was a witness of the Fund's continuous pursuit for growth opportunities and diversification of its portfolio with successful acquisitions of several investments as highlighted earlier in the specific portfolio reports above.