State investment arm to be reviewed after $500m loss
The Age
Thursday March 3, 2011
THE Baillieu government has ordered a review of every aspect of the state's investment arm, including whether it holds more dud assets, after Treasurer Kim Wells blamed the former government for "a massive cover-up" of a $500 million loss on a Gold Coast-based "death fund".Responding to revelations in The Age yesterday, Mr Wells said ex-treasurers John Brumby and John Lenders were personally responsible for losses by the Victorian Fund Management Corporation, which controls about $35 billion in assets used mainly to pay public servants' superannuation entitlements. "Another day, another monumental financial disaster by the previous government," Mr Wells said.The failed investment was in Life Settlements Wholesale Fund, which specialised in bulk purchases of life insurance policies from elderly Americans. It made huge losses due to miscalculations on how long policyholders would live.In a scathing report obtained by The Age, former executives of the Victorian Fund Management were accused of failing to properly check risks and relying on "online searches . . . and advertorial" material when investing $1 billion of taxpayers' money.Sources involved with the corporation in 2007 and 2008 have told The Age the "death fund" was not its only questionable investment.They claim other proposals worth hundreds of millions of dollars had a similar lack of scrutiny, and that dissenting voices on the key decision-making committee were ignored by managers at the time.But current chief executive Justin Arter says there are no further "skeletons in the closet".The Age understands that accountants KPMG last year recommended replacing state Treasury as the corporation's prudential regulator with an external body, so that Treasury would no longer be both watchdog and shareholder.KPMG will now extend that review, looking at every aspect of the corporation's investment guidelines, which were rejigged by Mr Brumby when he was state treasurer.KPMG will be asked to forensically examine the corporation's previous and current approval procedures, and whether the board communicates properly with Treasury.Karen Batt of the Community and Public Sector Union, Victoria's biggest public sector union, yesterday called for the corporation to be wound up, saying its "poor investment record is well documented".
© 2011 The Age