Manage estates, not investments

Friday • December 7, 2007

Letter from KARMA TSULTRIM WANGCHUK

I refer to "Move to protect council funds" (Dec 1). It is noteworthy that rules on the investment of Town Council funds have been tightened for the sake of risk management. However, we should not be distracted from what I consider to be the priority issue that has not been really addressed in recent reports and comments regarding this matter.

First, let's examine what we expect the role of Town Councils to be and not to be. In my view, Town Councils have only one primary role: As estate managers, that is, to upkeep the HDB estates under their charge in acceptable livable conditions. To fund such activities, they charge and collect monthly fees from residents to defray recurring and seasonal costs, as well as to set aside a sinking fund to cover cyclical costs which recur every few years.

With many years of experience, Town Councils are by now quite capable of budgeting fairly accurately for the short- and long-term and the sourcing of funds including Government grants and the capital levy imposed on residents for any one-off upgrading.

Granted, monthly conservancy charges should be levied on residents to balance the budget, leaving at most a reasonable reserve for contingency purposes.

It is not the business of estate managers to collect charges from residents and then engage in financial investment activities, which are not within their area of expertise. Also, residents are not shareholders of Town Councils and I believe therefore, they do not have any legal right or direct access to the excess funds or earnings from these. And yet they are the major providers of these funds and bear the risk if the sinking funds are invested badly. If investments result in a net loss, the residents will most likely be asked to top up.

Two things should be done for the sake of the public's interest.

First, if a substantial portion of the funds held by Town Councils is indeed excess funds, Town Councils should lower their monthly conservancy charges sufficiently so that the excess can run down over time. With the rising cost of living, this is the right way to reverse over-charges, if any, and ease the cash-flow of the heartlanders.

Second, the Government should immediately call for an audit on the management of these funds (and share the findings publicly), so as to address the following issues:

• The adequacy of the risk management processes for proper control.

• The existing investments should be marked to market and the profit and losses of previously-held investments determined. Only then will the public have a complete picture of the time performance of the investments.

• Review investment limits and policies with a view to confine investments only to Government-issued and "Triple A" instruments. Also, the centralisation of fund investment at Ministry level should seriously be considered. This will facilitate the pooling of investment expertise, control and provide economies of scale so as to minimise administrative and risk management costs.

Copyright MediaCorp Press Ltd. All rights reserved.

New rule to safeguard council funds

ST Dec 2, 2007
By Tan Hui Yee & Mavis Toh

TOWN councils tempted to play the stock market to increase the returns on their sinking funds will now have to meet a new rule that caps how much they can put into higher-risk investments.
Councils, which have had some leeway when investing their cash, must limit their investments in non-government stocks, funds or securities to 35 per cent of the sinking fund.

This new rule, which kicked in yesterday, applies to more than $1 billion in sinking funds managed by the 16 town councils in Singapore.

The money is collected through monthly service and conservancy charges and government grants and is used for cyclical repairs, such as re-painting or re-roofing.

The Ministry of National Development brought the rule in to strike a balance between councils trying to get good returns on their funds and not taking undue risks with residents' money.
Some council cash has been going into shares and corporate bonds, which are considered riskier than government ones.

The president of the Society of Financial Service Professionals Leong Sze Hian said: 'Corporate bonds are only as good as the company can pay. The risk of a company running out of money is higher than that of the Government.'

Before the new rule, council investments were governed by the Trustees Act, which placed restrictions on some instruments. The new 35 per cent cap is seen as stricter, but no council contacted by The Sunday Times said it would have trouble complying.

The Hong Kah Town Council has about $150 million in its sinking fund, with one-third invested in government bonds returning 2 to 3 per cent. Another third is in short-term fixed deposits with returns of 1.5 to 3 per cent, with the rest handled by fund managers.

The investments can include corporate bonds and stocks, which are riskier. But this portion, handled by fund managers, nets about 8 to 10 per cent in returns a year, said council chairman Ang Mong Seng.

Sinking funds are typically parked in safe investment instruments, such as government bonds and fixed deposits. But a few years ago, many councils felt that they could do better by investing in other instruments, such as shares.

Many then let fund managers invest a bigger portion of their cash and reap better returns.
In light of the recent turmoil in the financial markets, many back the new cap, stressing that their primary goal is to preserve their capital, rather than maximise returns.

Dr Teo Ho Pin, who heads the Holland-Bukit Panjang Town Council and is also the coordinating chairman of the People's Action Party town councils, said: 'Some town councils may have to make some adjustments with this rule.' This includes his council.

The chairman of the Government Parliamentary Committee on National Development and the Environment Charles Chong said that councils have been given five years to bring their investment levels under the cap. This will allow existing debt instruments to mature and reap returns.

But he cautioned town councils against becoming too conservative with their investments: 'Our inflation rate is going up and estimated to hit 5 per cent. If we're getting a yield of 2 or 3 per cent, we are really eroding the value of our reserves.'

tanhy@sph.com.sg
mavistoh@sph.com.sg

Accident CCK Way / CCK Ave 3

Stomp
Posted on 02 Dec, 2007 15:42

STOMPer Frank saw this accident at the junction between Choa Chua Kang Way and Choa Chu Kang Avenue 3 at about 2pm today (Dec 2).

STOMP has contacted the Police for more information.

Advertising stickers on lamp posts

Dangerous CCK Junction

Stomp
Posted on 01 Dec, 2007 11:47

STOMPer Choo sent this illustration to highlight the hazards for cyclists and drivers in Choa Chu Kang, following recent accidents in the area.

The STOMPer also sent this photo taken of an accident at the traffic junction of Choa Chu Kang Ave 4 and Choa Chu Kang Loop at about 4.30pm on Thursday (29 Nov).

"This accident happened just a couple of weeks after another accident (I believed it was reported in ST Forum online letters) which occurred at only the next junction to the above, at Choa Chu Kang Ave 4 and Choa Chu Kang Way," Choo said in an email on 30 Nov.

"The goods of the damaged lorry landed on the traffic island where all pedestrians usually stand while waiting to cross the road.

"Fortunately no one was injured. I remembered a news contributor appealing for something to be done, and he highlighted that many pedestrians can be seen standing on the island of the traffic junction whenever he drove past this junction each morning to work.

"I have drawn an illustration of a situation which might cause these accidents to happen.

Perhaps it is in no way related to both accidents. I'm talking about cyclists," the STOMPer said.Choo said there are many cyclists in Choa Chu Kang, especially during peak hours.

"I have witnessed a car stopping just before a pedestrian crossing to avoid a cyclist speeding across it. The driver was making a right turn. It was almost an emergency brake for the driver.
"If the cyclist is coming from the opposite direction, I'm sure the driver can see him. But it will be more difficult if the cyclist is coming in the same direction as the car driver.

"It's an unpredictable situation for any car driver. The driver has to turn his head further to the right and behind to check for any cyclists trying to dash across "pedestrian crossings" before he makes a right run.

"I hope something can be done to inculcate safer cycling habits," Choo said.

Move to protect council funds

Ministry puts limit on estates' riskier investments
Weekend / December 1, 2007
Loh Chee Kong
cheekong@mediacorp.com.sg

IN THE midst of an increasingly volatile financial market, the Government has moved to restrain Town Councils' investment activities as a precautionary measure.

On Thursday, the Ministry of National Development (MND) gazetted amendments to the Town Councils Financial Rules, which came into effect on Saturday.

The most notable change is a 35-per-cent cap on the amount Town Councils can use out of their sinking funds to invest in non-Government issued securities such as corporate bonds and equities, which are seen as "higher risk" investments.

There is no cap on the proportion used to invest in Government bonds or treasury bills.

MP Inderjit Singh, the vice-chairman of the Ang Mo Kio-Yio Chu Kang Town Council, told Today it was "not a sudden decision" as the MND had been monitoring the situation "for quite some time".

"I think what they discovered is that some Town Councils participate in riskier investments. The MND wanted to prevent Town Councils from being too aggressive. The idea is to protect the sinking fund as much as possible for future use," he said.

In response to Today's queries, an MND spokesperson said that changes to the set of financial rules "are made from time to time to bring them up to date and facilitate the effective administration and operation of Town Councils".

The spokesperson added: "Town Councils are required to set aside sinking funds to enable them to carry out long-term cyclical maintenance or replacement works for the estates. As such, (they) need flexibility to invest funds that are not required for immediate use, while ensuring the funds are not exposed to unnecessary risks."

Noting that the bulk of public sector investments is in Government-issued securities, CIMB-GK economist Song Seng Wun said: "I don't think (the cap) would affect any of them at the moment.

It's more to ensure the Town Councils have a reference point."

Previously, Town Councils were given the same investment powers as statutory bodies under the Trustees Act, which spells out the type of investments they could make. But according to Dr Teo Ho Pin, co-ordinating chairman for the People's Action Party Town Councils, statutory boards - including Town Councils ?were given greater leeway to invest at the turn of the millennium.

And under Section 33A of the Interpretation Act, a statutory body may invest "in such manner as it thinks fit" and "engage in any financial activity or participate in any financial arrangement for the purpose of managing or hedging against any financial risk that arises or is likely to arise from such investment".

Currently, Town Councils have various ways of managing their investments, including setting up finance or business committees or entrusting their money with external fund managers.

Said Dr Teo, who chairs the Holland-Bukit Panjang Town Council: "If we just put the money in fixed deposits, isn't that more irresponsible? There were a lot of criticisms in the past when the statutory boards dared not invest their money."

The Town Councils have recently submitted their 2006/2007 annual reports to Parliament for gazetting.

According to Holland-Bukit Panjang Town Council's 2005/2006 annual report, it has sinking funds of some $89 million. Of this, it holds shares worth some $8.4 million in book value, while investing $31m and $3m in bonds and unit trusts respectively.

Some smaller wards such as Potong Pasir invest solely in Government bonds. According to its MP Chiam See Tong, the Potong Pasir Town Council - ich has a kitty of $5 million ?employs a full-time finance manager to manage its $1.9 million worth of investments.

Holland-Bukit Panjang Town Council was listed as a major shareholder in Creative Technologies' latest annual report, holding 530,000 shares currently valued at about $3.4 million.

Pointing out how the shares of Creative Technologies had fallen drastically in the last few years, Mr Leong Sze Hian, president of the Society of Financial Service Professionals, felt that the investment guidelines should be "beefed up" further to make sure that even with the cap on high-risk investments, Town Councils are prevented from putting too many eggs in one basket.

Said Mr Leong: "There's nothing to stop them from putting all 35 per cent in one stock.

Nowadays, Town Council funds go up to a hundred million. And 80 per cent lost in a single stock can mean a loss of about $30m."

Pointing out that there are always risks involved in an investment, Dr Teo declined to discuss the specifics of the investment in Creative Technologies.

But he reiterated that his Town Council adopted a "wide" investment portfolio. Said Dr Teo:

"Our investment committee has made good returns on our investments so far, averaging about eight to 10 per cent per annum, which is better than the bank interest rate."

Copyright MediaCorp Press Ltd. All rights reserved.

Lights on - 071201

The lights and fans at this RC Zone 9 Residents Corner were left on thoughout the night for a long long time. A waste of electricity.