NASFUND E-Newsletter: February 2011 Edition - NASFUND Credits 15% to Members for 2010

NASFUND E-Newsletter - February 2011 Edition
Summary of Key Results - Twelve Months to 31st December 2010
NASFUND Credits 15% to Members for 2010
In This Edition

1.
Summary of Key Results - Twelve Months to 31st December 2010
5.
NASFUND purchases a further 6.8 million Credit Corporation (PNG) shares
2.
NASFUND Year In Review
6.
NASFUND Sells 60% of Data Nets
3.
Investment Summary
7.
Email Hacktivism Propagating in PNG
4.
NASFUND - A Decade of High Performance
8.
NASFUND's On-The-Job Training Programme

A Word of Caution

Since 2005, NASFUND has averaged a 19% return to members excluding reserves. In the last two years we have credited 15% p.a. Compared with Australia, we have also done exceptionally better in Fund returns over 1 - 10 year periods. This performance has been due to your Fund capitalizing on the growth with in the Papua New Guinean economy on the back of macro stability and the Asian led resource boom. Such favourable conditions are unparalleled in the history of the country.

As we move forward over 2011, it has become clear that the “engines” that drive capital appreciation through equities and property are peaking. We expect along with an appreciating currency, a slow down in the growth in property and local equity prices. More and more we will need to rely on stable albeit lower income returns from fixed interest and cash. An anticipated stronger currency will also impact negatively on overseas equity valuations like Oil Search, New Britain Palm Oil and Steamships owned by a Kina denominated Fund.

Two significant events are now occurring internationally which together perhaps present the perfect economic storm. The first is what is now happening in the Middle East. Clearly the winds of change are upon it, driven by the young and those that feel detached from any economic progress. It is also fanned by rising food prices. Traditional thinking suggests that what occurs after the collapse of despotic regimes in the Arab world will lead to free and more democratic regimes. This is the hopes of most, but what will be the outcome remains far from certain - and what may unfold is but a substitution from one tyranny to the gradual unfolding of another. In the meantime oil supplies will be threatened and price rises are eminent. Instability in the Middle East means economic adjustment in the West as oil price rises flow through into cost of production and cost of living.

The other significant event is the inability of the United States to deal with its mounting debt problem. Unless urgent action is taken, the United States is poised for economic difficulties unparalleled. To give an idea of the enormity of the problem faced by the world’s largest economy, we only have to look at its budget deficits. The budget deficit is growing at $US120 billion per month, more than three times its growth in GDP. At some stage (and that day of reckoning is near) unless urgent action is taken, the United States will have no choice but to undertake very harsh economic measures to create budget equilibrium and the effects on international growth will be substantial. Combine with similar events occurring through Europe and the prospect of debt default in parts of the euro zone, 2011 will be an interesting journey.

The message to members is to start lowering expectations – 15% crediting rates are extraordinarily high and rarely matched year on year. The Fund as reported this January anticipates a model generated return in 2011 of around 8-9%. From our 2010 return pf 16.93%, we took some of that return and parked it in reserves anticipating the impact of a higher currency and lower capital values. Reserves are now around 4% of Net Asset Value. This makes NASFUND the highest Reserving Fund in the country with over K88 million in reserves. This will provide some insurance for any shocks in either the PNG or world economy over 2011.

The aim over 2011 is now to balance the enormous previous returns based on particular asset class settings and bring the Fund’s asset allocation into alignment to counter what we see as emerging issues both at home and abroad. To this end we will set the Fund on a course for a soft landing in 2011 and that means a return to lower but more sustainable long term returns. We ask again for Members to readjust expectations in light of the current events unfolding and not to assume double digit returns are the norm. They are not in Australia and elsewhere, they certainly should not be expected in Papua New Guinea as well.

- Rod Mitchell – Joint CEO.



1. Summary of Key Results - Twelve Months to 31st December 2010





Business Development

2. NASFUND Year in Review 2010
Operational Summary

NASFUND performed strongly on all fronts, in a year buoyed domestically by work starting on the LNG project and the aftermath of GFC. In 2010 we undertook to ensure your Fund's operations continued its core responsibility of delivering quality service to Members and growing Members' wealth through prudent investments. That focus based on our core pillars of governance, open communication and innovative products using information technology translated into the following results:

•
NAV of K2.22 billion representing 25% growth in net assets.
•
Active Membership base of 140,545 contributors representing 11% growth.
•
Active Employer base of 1,943 employers representing 9% growth.
•
Monthly average of K24.7 million in contribution receipts representing 27% increase in contribution inflow.
•
Monthly net cash flow of K12.20 million after Member withdrawals.
•
Efficient processing of 74,323 withdrawal applications.
•
Introduction of phase (2) of TEXT BAL enabling Members to access superannuation balances on their mobile phones through pull facility.
The Marketing Division was renamed Business Development and its objectives realigned so that all marketing activities were directed at more specific targets. Staff were updated on the latest products and services particularly personnel in branch offices to ensure consistency and accuracy in dissemination of information. Presentations and awareness were carried out through the country as well as overseas Investment Conferences and Trade Fairs held in Sydney and Townsville, Australia respectively. Also included in the presentations were audiences from a number of government agencies and state owned entities interested in the services and benefits offered by the Fund. Overall, shop floor presentations were made to 397 employers while 209 new employers were identified and brought under NASFUND coverage. Text Bal, our current flagship product which now has 21,000 Members continues to be a very popular service because of the convenience it provides to Members.

Information Technology

IT Division further enhanced our paperless office objective by successfully rolling out the latest digital Document Management Systems (DMS) using Vicidocs, a software package acquired from Datec. The IT department also sought to curtail rising telephone costs by replacing our existing legacy telephone PABX system to a third generation Digital PABX system from NEC. The new system will be able to accurately monitor calls as well report wastage or abuse.

Links to our branch offices to enhance speed, capacity and reliability are being upgraded as well to improve network performance. This is a critical area for IT as down times or slow response time affects the speed of service Members receive over our counters.

Client Service

A significant change experienced by our client service center in Port Moresby was the 40 % reduction in Member calls to Client Services as result of the introduction of phase two of our Text Bal Service. NASFUND is proud to be the first superannuation Fund in the country to utilize information technology through mobile phones to enhance service to Members. Over the year the client service team dealt with:

• 154,638 phone enquiries • 119,537 counter enquiries • 31,727 email enquiries

Employer Services

Efforts by Employer Services recorded the following results:

•
Default employers remaining at benchmark of 3% of active employer base.
•
Active employer base of 1,943 employers.
•
Active Membership base of 140,545 contributors.
•
620 of employers employing 109,340 Members remitting schedules electronically.

Human Resource

In line with our objective to develop our human resources through group training to foster team work and team building, three group sessions involving 55 staff were organized during the year. The first two, Outbound Team Building and Great Managers & Talented Employees were conducted by the Institute of Business Studies at the IBS 11 mile campus outside Port Moresby. The third session, Accounting for Non Accountants was conducted in house by the University of Papua New Guinea. The impact of group training for NASFUND is that staff understand and appreciate that optimal performance whether client servicing, investment management or public profiling is dependent on team work.

Corporate Services - Communication

We have once again demonstrated our efficiency by being the only Fund in nine years to have:

•
Annual reports signed off in seven weeks of year end.
•
Printed Annual Reports available for public reading within 60 days of balance date.
•
Credit annual interest to Member accounts within 60 days of year end.
•
Produced ongoing performance reports throughout the year through e- newsletters, website and biannual statements.
•
Half yearly statements to Members within one month or print.

Pacific Provident Fund and Social Security Forum 2011

In 2011 NASFUND will host the Pacific Provident Fund and Social Security Forum in Port Moresby. The PPFSSF Forum is an organization of superannuation, provident funds and social security organizations in the Pacific region charged with the prime responsibility of managing and growing the retirement savings of their respective workforce.

NASFUND is already playing its part by sharing investment opportunities with the Solomon Island National Provident Fund through the joint ownership of the Heritage Park Hotel in Honiara and is now in partnership with Fiji National Provident Fund through the shared ownership of the Grand Pacific Hotel in Suva.

In September this year (2010) we hosted a 6 Member delegation from the Fiji National Provident on a one week attachment to share our experience with successful reform and positive results. Fiji NPF is currently undergoing a major reform exercise and sought to look at the NASFUND model of success for assistance with their reform agenda.


3. Investment Summary

International Environment

The 2010 year continued the uncertain theme of 2009 as the Global Financial Crisis continued to throw up more aftershocks from the melt down of 2008. Two specific interrelated issues dominated 2010 - the indebtedness of the United States and many countries in Western Europe and the currency wars which was the byproduct of quantitative easing in part to externalize excessive debt. The fall in the US dollar, the corresponding rise in the value of gold and impost of currency restrictions and quotas in some countries tell us that in some ways we live in not dissimilar circumstances to the 1930's.

The observation that has become clearer as the dust settles from GFC is that we now have two very different economic zones. We have the western world facing on the whole anemic growth having shifted private indebtedness on to the public books as a means to stimulate their failing economies. We also have another zone, primarily in Asia but also in some emerging Latin American countries that have defied the economic crisis and are delivering strong growth. These countries freed from high labour costs, soft regulatory environments, lower debt profiles and emerging domestic demand due to rising incomes have been the star performers. This quasi decoupling of Asia from Europe and the United States signals a very fundamental shift that will change the investment scene for years to come. Spurred by China and India, seeking more and more resources, to meet their domestic as well as export requirements, the centre of economic gravity is shifting to Papua New Guineas' door step.

Domestic Environment

From 2007, we have witnessed the emergence of a new paradigm in regards to investor perceptions of Papua New Guinea. This has been brought about by a number of factors

•
the obvious decoupling of Papua New Guinea from what was occurring internationally; with our own particular dynamics powering respectable growth, albeit with high inflation. Papua New Guinea faced the GFC with low debt levels, large surplus balances in trust accounts, high import cover and an economy in the middle of a resource and construction renaissance.
•
In a world, where long term growth and performance will increasingly appear in Asia and with a world hungry for energy and minerals, Papua New Guinea is strongly placed to satisfy part of this demand for resources and in particular in the area of energy. The announcement of the in excess ofKl8 billion LNG project, with an estimated K 30 billion of revenues coming back to government and land owners over the next 30 years, gives PNG an opportunity for transformational change not seen before. Combined with other projects gearing up for production like Ramu Nickel and the Newcrest/Harmony gold project, all suggest a large under-writement of future PNG prosperity.

Fund Investment

Over the last 12 months it has been clear that the economy is overheating with serious bottlenecks fueled by a construction boom centered in Port Moresby as well as LNG related field work. Similarly it has come at a time of excess liquidity in the market partially contributed by the dissipation of Trust account moneys held by Treasury. Money supply growth has been excessive. Fiscal discipline has been patchy and likely to continue. Growth and inflation is expected to sit within the 7-8% range. Of interest, have been cash rates. Like the problem faced globally, PNG is awash with liquidity. Loose monetary policy has ensured high inflation rates combined with low interest rates. This is set to continue for some time. The Fund has capitalized on these factors in a number of areas.

Property

This year NASFUND completed five buildings, Sol Wara, Ravalian Haus, Sumsuma Complex, IPA Haus and The Factory. All are fully leased and are valued in excess of construction cost. In 2011 we expect strong income returns from these investments. The remaining constructions still to complete are a 63 apartment complex known as The Edge at Harbour City and a 17 apartment building in Lae called Hillside Gardens.

Fixed Interest

The Fixed Interest portfolio continues to grow as the Fund capitalizes on long term government securities. This strategy was put in place in 2009 due to the expectation that capital gains from our growth assets will be less forthcoming over the next few years and short to medium term interest rates would remain low.

Equity

The Funds international equity portfolio did extremely well in 2010 both in terms of price appreciation and currency movement. It was a mixed result for local equities which on the whole faced downward pressure from lack of serious volume. In our unlisted portfolio we sold our 60% interest in Data Nets, purchased a 61% interest in Lae based mixed Agri-business Mainland Holdings and 49% of Pacific Energy Aviation (PNG) Ltd (formerly Shell Oil Petroleum Products).

Summary

In 2010 NASFUND commenced Operation Step-up with the aim of lifting the operational, investment and communication aspects of the business. Looking back over a very aggressive change enhancing period, we are pleased with the outcomes.

4. NASFUND - A Decade of High Performance

While return comparisons with Australian Fund’s can be erroneous, it never the less tells a story of NASFUND’s strong performance against international Funds. NASFUND over the last decade has been successfully able to capitalise on the strength of the Papua New Guinean economy by an aggressive and decisive preference to work the investment trend. In the earlier years it was with equities, then property and now a re emerging preference for domestic equities and fixed interest investment.




As the graph on the left shows, your Fund has performed exceptionally well against Australian Funds on a one, three, five, seven and ten year time scale. In 2010, the average balanced fund in Australia returned around 4.60% compared with NASFUND’s 15.00% net of tax.

At the start of the global financial crisis a three years back, NASFUND was very firm in the view that the country’s growth dynamics would ensure that it would by pass the crisis and emerge unscathed. This is indeed what happened. As the graph shows, NASFUND with quick intervention with its international portfolio rode the financial crisis while Australian Funds on a three year performance criteria went into negative territory. What the graph does not show, was that at the time Australian Funds generally used their reserves to cushion the extent of losses. NASFUND to this day maintains reserves of over 4% or close to K100 million. The Fund is in an exceptionally good state.

Looking at international funds is one way of looking at comparative performance. Another way is by measuring Fund performance against inflation. NASFUND’s mission statement is in part “to credit positive returns above inflation” This objective has been met over the period as the following graph shows.

In all, NASFUND has enjoyed a decade of high performance and Members have benefited not only by the Superannuation reforms, but by active and prudent management of your money with visible results. To put it in perspective, K10, 000 invested in 2001 with no further contributions is today worth net of tax and expenses K41,619.






Fund growth has averaged 26% annualized over the last decade with Fund assets growing from K223 million to K2.22 Billion.


At the same time management expenses have been firmly checked with the Management Expense Ratio (MER) more than halved. The MER is comparable to most Industry Funds in Australia.


And membership has averaged a 9.5% annualized growth rate to over 140,000 active members and 180,000 inactive Members.

Finally, we should not forget what makes NASFUND the Leader in Superannuation through our service and product offerings.






5. NASFUND purchases a further 6.8 million Credit Corporation (PNG) shares


In late 2010, NASFUND increased its shareholding in Credit Corporation (PNG) Limited, purchasing a further 6.8 million shares at a price of K1.50 per share. This brings NASFUND’s total holding to 15% ownership of Credit Corporation. NASFUND values Credit Corporation at a range of between K2.20 – K2.30 with strong property assets and a successfully managed finance arm that runs throughout the Pacific. Since the purchase of addition shares in the company, the share price has moved to K1.80 per share. Ian Tarutia MBE represents NASFUND on this Board.


6. NASFUND Sells 60% of Data Nets

NASFUND in 2006 bought its 60% share in the internet company DataNets for K5.679 million. NASFUND purchased the interest for a number of important reasons.

Firstly, the Managing Director, Sundar Ramamurthy is perhaps the most renowned and respected Information Technology expert in the country. His acumen in this area is beyond doubt. This was an essential ingredient in our decision making process.

Secondly, NASFUND needed to build its own technology capability not only internally but externally as well. Having access to a leading technology expert like Sundar and DataNets assisted in NASFUND’s leap in technology over the last five years.

Thirdly, the ISP space was something that NASFUND need to invest in while it was undergoing transformation.

Over the last five years we have seen DataNets grow exponentially, in terms of provision of ISP, its purchase of telephony PABX communications, NEC, and innovative systems like Easipay.





In 2010, DataNets won the PNGID innovative company of the year award.

NASFUND capitalised on the successful performance of this extraordinary business and sold its interest sold its interest to a group that has the ability to take it forward in away NASFUND as shareholder could not. NASFUND’s return on DataNets averaged over 29% p.a since 2006 excluding dividends. We thank Sundar for the enormous effort and commitment made over that period and wish him all the best in the future with DATANETS – PNG’s leading ISP.


7. Email Hacktivisim Propagating in PNG
Dare say watch your corporate emails

In recent times there’s been a spike in Papua New Guineans having their internet email accounts hacked into and their contacts being spammed with the intent of committing fraud against those in the contacts list of the hacked email account.

The main corridor for hackers to grab a handle on your emails and exploit is through spam emails requesting email users to subscribe to a proliferation of social networking, business, get rich and a host of other website categories. The main catch is that you’re recommended by someone already a subscriber of that website to join.

Have you ever been suspicious when you get an email requesting you to subscribe to a website with your full email address and password for that email account?

Why would you be requested to disclose your password? Have you had second thoughts not to disclose your corporate email passwords?

There is a scheme going around where the hackers with intent to defraud hack into email accounts and email the contacts list pretending to be the rightful users of an email address. They claim to be stranded overseas and request urgent transfer of funds to help them pay for hotel bills or uplift them home to their countries. The fraudsters pretend that you’ve lost your bank cards, have lost literally everything including your passports and are immobile, dejected and stranded in the middle of nowhere. They need your financial support immediately.

Have you ever stopped and thought, wait a minute! There is a PNG embassy in the country or city this person says they are stranded. Obviously, they could approach the embassy for help or some other means in the locality of where they are stranded for help as it would take ages communicating via email and providing assistance from PNG considering systems and processes move at a snail’s pace in our country.

This scheme has happened to a few Papua New Guineans. It could be worse for some if you’ve left your important banking details in your email messages or somewhere in your email accounts. As an extension of the troubles that would befall one from this scheme, those in your contacts list if non-wiser could be hurt as well with a good heart and intent to help you out.

For users of corporate emails, just be mindful not to disclose corporate email details including usernames, passwords and mailserver details when receiving invitations from the anonymous emails – only unless requested by your organisation. You could get yourself, your organisation and those in your contacts list short-changed or worse which is best left to your imagination.


8. NASFUND's On-The-Job Training Programme

NASFUND is pleased that since 2000 we have seen over 100 senior school to tertiary institution students pass through our on-the-job training program. These students are attached to different functional divisions in the organisation for two to three months during their school vacations.

Lifelong transferable skills gained from their on-the-job training stints with NASFUND besides the specific technical skills gained are:

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Confidence to work in effective team environments
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Present material orally
•
Effective team work skills
•
Manage time
•
Plan and arrange events and activities
•
Keep records
•
Delegate responsibility
•
Handle complaints
•
Motivate others
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Coordination of activities
•
Attend to visual detail
•
Coach
•
Assess and evaluate one's own work
•
Research
•
Assess and evaluate others' work
•
Utilize computer software (specify programs)
•
Deal with obstacles and crises
•
Train or teach others
•
Multi-tasking
•
Identify and manage ethical issues
•
Present written material
•
Being organised

On setting foot at NASFUND most of the student trainees are overcome with “stage-fright” ambience by their first time experiences in a workplace environment mainly from lack of confidence. With the team spirit and environment at NASFUND such lack of confidence becomes second nature in a matter of a few short weeks.

The feedback from student trainees is humbling. They acknowledge that with NASFUND’s open door policy, open communication and camaraderie of the workplace where everyone is a mate and a friend their on-the-job training stints with NASFUND have been truly enriching experiences enabling them to appreciate what is expected of them at the workplace and more importantly the lifelong transferable skills that won’t be only useful in their first jobs but also when it comes time for a career change.

Being the dynamic and progressive organisation that NASFUND is, we hope we have made a lasting contribution and impact in the career paths of 100 young Papua New Guineans who in their lifetimes will infect as many peers, functional divisions and the organisations they work for to strive for and bear much success in the same way NASFUND has.