Investment funds involve the purchase and management of financial assets to fund a particular policy objective by subsequently drawing on earnings and / or capital. The establishment of an investment fund should therefore consider:
1. Is there a clear need to hypothecate funding outside the normal Budget process?
Unless there is a case to hypothecate resources, the Budget is the primary means for the allocation of resources.
2. Is there a clear need to hold financial assets (can a Special Account be used)?
Consideration should be given to the direct and indirect cost associated with investment funds, and the acquisition of financial assets.
3. What is the most efficient management arrangement for investment of financial assets, and who is best placed to manage these arrangements, taking into account the investment horizon, liquidity needs and risk appetite?
The acquisition and management of financial assets requires expertise, including risk and liquidity management expertise.
More information on the investment fund principles can be found in Estimates Memorandum 2020/41 – Commonwealth Investment Funds Principles, which can be found on the Central Budget Management System.