Environment Waikato is making a phased withdrawal of its investment in the Russell Alternative Strategies Fund II, says group manager finance Warren Stevens.
Mr Stevens confirmed the regional council had about $3 million in the “fund of hedge funds” as at 31 December 2007. That compares to a total Investment Fund portfolio of more than $70 million at 31 March.
Due to the turmoil which has hit world financial markets, the alternative strategies fund II investment is currently worth $2.9 million, meaning an unrealized loss of about $100,000 since 31 December.
“In the current, more volatile state of world financial markets, we made a decision some time ago to exit the alternative strategies fund II. We had a small portion of our total investments in this particular fund as it offered potentially higher returns,” said Mr Stevens.
“However, as the fund’s contracts mature they are being liquidated and monies repatriated to the fund investors.
“Based on the advice of Russell, we believe this is a more prudent course of action given current uncertainty in world financial markets.
“We don’t know how big our actual alternative strategies fund II cash loss since 31 December will be once the contracts mature.
“Any loss of money is of concern but we are managing the situation as closely as we can to ensure our overall long-term investment strategy is still relevant.
“We believe that, overall, our current investment strategy is cautious and prudent, and it is one that has earned superior returns for our ratepayers compared with having our Investment Fund assets tied up predominantly in fixed interest.
"For example, in the five years to December 2007, we have earned about an extra $2.5 million a year, or $12 million in total, from having part of the Investment Fund in international shares rather than just sticking with fixed interest.
“The reality is that in any one year there is always a risk of an unrealized or actual loss. But over the longer term our strategy has proved its worth.”
However, Mr Stevens said that this year, in line with Environment Waikato’s normal review cycle, the current investment strategy will be reviewed by council.