Answers to Questions

SUBPRIME MORTGAGE MARKET

In reply to Mr GRIFFITHS (Goyder) (25 September 2007).

The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Industry and Trade, Minister for Federal/State Relations): Funds SA’s international fixed interest investments are managed by two specialist management groups, Pacific Investment Management Company LLC (PIMCO) and Loomis Sayles & Company, LP.

At the time of the collapse of the US sub prime mortgage market in mid 2007, Funds SA, through the two specialist managers, had no direct exposure to US subprime mortgage investments.

Since this time, and after the significant fall in prices, Funds SA’s specialist managers have selectively purchased several securities containing diversified pools of assets, including mortgages.

Securitised mortgages are an established component of the international fixed interest market, accounting for approximately 20 per cent of the value of all securities.

These investments are rated AAA, but do contain an indirect exposure to US subprime mortgages, heavily protected by appropriate credit insurance.

In aggregate, this exposure represents less than 0.04 per cent of Funds SA’s total portfolio value of $13.5 billion.

Notwithstanding the recent volatility in financial markets, overall portfolio performance remains within expectations with the Growth fund earning 2.1 per cent in August and 18.5 per cent for the year to August, and the Balanced fund earning 2.0 per cent and 16.8 per cent for the same periods.