Petroleum Fund of Timor-Leste Notes to the financial statements
for the year ended 31 December 2013
12. Financial risk and management objectives and policies
The Petroleum Fund’s activities expose it to a variety of financial risks: market risk including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk, credit risk and liquidity risk.
The Petroleum Fund is also exposed to a range of operational risks that may temporarily or permanently impair the ability of the Fund’s managers to hold or transfer securities.
The Petroleum Fund’s overall risk management programme seeks to maximise the returns derived for the level of risk to which the Fund is exposed and seeks to minimise potential adverse effects on the Fund’s performance.
The management of these risks is carried out by the Investment Advisory Board and the Banco Central de Timor-Leste. The Investment Advisory Board develops investment mandates and benchmarks that reflect the Board’s understanding of the financial risk tolerance of the
Fund’s stakeholders and the capacity of the Fund’s day-to-day management to implement, and which are in accordance with the Board’s published Statement of Investment Beliefs. The mandates and benchmarks are approved by the Minister of Finance prior to implementation.
The Central Bank has policies and procedures for managing and monitoring financial and operational risks for its own operations, external managers, global custodian, and the Petroleum Fund’s other key service providers.
The financial risks associated with the Petroleum Fund are monitored by the Risk Management Division of the Petroleum Fund Management Department at the Banco Central de Timor-Leste, which prepares daily management reports for senior management and quarterly reports for
the Ministry of Finance and Investment Advisory Board. The Petroleum Fund is subject to periodic audit by the Internal Audit Office of the Banco Central de Timor-Leste, which has operational independence from the management of the Petroleum Fund. The Internal Audit Office
provides formal monthly reports to the Governor, and quarterly reports to the Governing Board of the Banco Central de Timor-Leste.
The Petroleum Fund Law sets limits on the use of derivative financial instruments whereby derivatives may only be used to reduce the risk to the Fund or to efficiently facilitate the desired exposure to an asset, and whereby the risk arising from the use of the derivatives may not be
higher than would result from direct exposure to the underlying assets. As such, the objective of using derivative instruments is to reduce financial risks and costs associated with implementing the investment strategy. The Petroleum Fund does not enter into or trade financial
instruments, including derivative financial instruments, for speculative purposes. The individual investment mandates set by the Investment Advisory Board include rules for the use of derivatives within these legal requirements.
Investment strategy
The Petroleum Fund’s objective is to meet benchmark returns on its capital within the risk limit provided in mandates and within the limits established in Articles 14 and 15 of the Petroleum Fund Law relating to Investment Policy and Investment Rules.
The investment strategy of the Petroleum Fund is determined by the Minister of Finance based on advice and recommendations from the Investment Advisory Board.
At the Investment Advisory Board meeting held on 28 June 2012 the decision was made by the Board to expand the public equity exposure by 0.83 a month over a period of two years to 30 June 2014 to achieve 40 equity exposure. The equity exposure as at 31 December 2013
was 36 26: 2012. The Petroleum Fund investment portfolio of assets at fair value through profit or loss including cash and cash equivalents complied with the
legislative and contractual requirements throughout the period.
- 21 -
Kategori