Review of state investment arm ordered amid fears of other dud decisions

The Age

Thursday March 3, 2011

By RAFAEL EPSTEIN

THE Baillieu government has ordered a review of every aspect of the state's investment arm, including whether it holds other 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, Treasurer Kim Wells said Labor treasurers John Brumby and John Lenders were personally responsible for losses incurred over the 2007 investment by the Victorian Fund Management Corporation."Another day, another monumental financial disaster by the previous government," he said.In a scathing internal review obtained by The Age, former executives of the corporation were accused of losing half a billion dollars after failing to properly check risks and relying on "online searches . . . and advertorial" material when deciding whether to invest $1 billion of taxpayer money in the fund.The Age can reveal that sources who sat on the corporation's key decision-making committee in 2007 and 2008 say the death fund is not the corporation's only questionable investment. They claim other proposals worth hundreds of millions of dollars suffered from the same lack of scrutiny, and that dissenting voices on the committee were ignored by the management team at the time.Current chief executive Justin Arter says there are no other mismanaged losses and no further "skeletons in the closet".The Age understands that accountants KPMG last year recommended removing Treasury as the corporation's prudential regulator and appointing another external body so that Treasury would no longer be both watchdog and shareholder of the corporation.Now KPMG will add to that review, and look at every aspect of the corporation's investment guidelines, which were rejigged by Mr Brumby when he was treasurer. Significantly, KPMG will review whether the corporation should continue to make its own centralised and detailed investment decisions, a key Brumby reform.KPMG will be asked to forensically examine the corporation's previous and current approval procedures and whether the corporation's board communicates properly with Treasury.The government was backed by the state's biggest public sector union, which called for the corporation to be wound up. The Community and Public Sector Union's Karen Batt said the corporation's "poor investment record is well documented and its abolition would save over $500 million". Criticising many of the current board members who signed off on the dud death fund investment in 2007, Ms Batt said "most board members would not have one cent of their own money in the super funds" that lost money.

© 2011 The Age

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