Victoria begins overhaul of funds management
The Victorian Government has announced an initial package of reforms of the government's strategic overhaul of the Victorian Funds Management Corporation (VFMC) to refocus the VFMC business strategy, and improve governance and oversight, as well as operational reforms to ensure VFMC delivers optimal performance for Victoria.
The State Government commissioned KPMG to undertake the initial review of governance, operations and investment strategies of the VFMC earlier this year, who published a review recommending improvements in the area of governance and risk management and found that greater clarity is needed in the strategic direction of VFMC and questioned, in particular, whether VFMC should compete for and manage private money.
These initial reforms include:
- VFMC will be focused on the effective management of public sector client funds and will not be permitted to manage private sector monies;
- VFMC's objectives will be clarified to focus the organisation as a best practice manager of public sector funds, removing broader industry policy objectives such as being a 'centre of investment excellence' in the private funds management industry;
- A new prudential standard and an independent prudential supervisor will oversee VFMC. The prudential supervisor will monitor and periodically report to government on VFMC's risk management policies and practices;
- VFMC's fee structure will be revised to more closely reflect a cost-based model with annual benchmarking;
- Bonuses will be funded from performance fees paid by clients in the event that VFMC outperforms for the individual client. This will help to ensure a stronger link between remuneration and client-specific performance;
- The government will work with the VFMC board to ensure that criteria for the short term incentive bonus scheme are strongly weighted towards measurable investment outperformance;
- Investment benchmarks will be realigned to ensure focus on individual client portfolio performance rather than aggregate VFMC-wide portfolio performance;
- A new set of performance indicators will include a measurable client satisfaction Key Performance Indicator;
- The VFMC will be required to justify the costs of in-house funds management in comparison to the outsourcing to external managers, allowing for a transparent assessment of the value generated by in-house management;
- The government will continue its ongoing efforts to ensure the VFMC Board is of an appropriate size and has the requisite skills, knowledge and experience required at board level; and
- Amendments to corporate governance practices will be introduced to bring VFMC more closely in line with best practice for listed companies. These amendments include a number of changes in relation to Nomination and Board Charters, Audit, and Disclosures.
The KPMG report and the Strategic Direction paper can be viewed at www.dtf.vic.gov.au