Investments must be in accordance with the Minister for Local Government investment order.
Byron Shire Council’s investments conform to the following:
- Council’s Investment Policy
- Section 625 of the Local Government Act 1993 (as amended)
- the Minister's Investment Order which existed at the time of the investment
- clause 212 of the Local Government (General) Regulations 2005
- Third Party Investment requirements of the Department Local Government Circular 06-70.
None of Council’s CDO investments had a rating lower than AA at the time the capital was invested. Therefore they were rated highly at the time of investment.
The current economic crisis is a global event and like many individuals and companies, Byron Shire Council’s investment portfolio has been exposed to credit products that are below the original amount invested.
As an individual, you may have found you have been affected by the recession in the following manner
- A drop in the value of your home
- A drop in your share portfolio investments
- A drop in the current value of your superannuation fund.
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CDO stands for Collateralised Debt Obligation. They are a newer type of investment with a potentially higher return than traditional government bonds. A CDO investment is available to individuals, organisations and companies.
The CDO is a product which is exposed to corporate debt. A typical CDO will be exposed to a portfolio of 100 corporate names. A CDO is built to withstand a number of defaults before it incurs any capital loss.
A default occurs when a company which is included in the 100 corporate names is unable to repay its debt obligations and files for bankruptcy. Should more defaults occur than the amount able to be sustained by the CDO product, the principal amount invested is placed at risk.
The rating of a CDO is determined by the quality of the corporate names within the portfolio.
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