In its audit report for Financial Year 2015/2016 which was published on 26 July, the Auditor-General Office (AGO) noted that Ministry of Defence (MINDEF) invested $50.26 million in a United States (US) Real Estate Investment Trust (REIT) exchange-traded fund (ETF) without the approval of the SAVER-Premium Fund’s Board of Trustees (BOT).
AGO further notes that MINDEF had made the investment through an investment manager without first obtaining the BOT’s approval to appoint this manager to render such services.
AGO states that MINDEF has a fiduciary duty to ensure that the SAVER-Premium Fund is properly managed and invested. The ministry has to ensure that investments are evaluated and approved by the appropriate authority as they have a direct impact on the quantum of retirement benefits payable to the members.
AGO found that in January 2015, a department in MINDEF responsible for executing the decisions of the BOT for the Fund, had made an investment in a US REIT ETF.
It is said that the department made this investment as a transitional arrangement, pending the finalisation of the appointment of two fund managers approved by the BOT for investments of $25 million each in Global REITs and US REITs.
The transitional investment of $50.26 million in the US REIT ETF was made after obtaining only the approval from the then Director of Defence Finance, even though such an investment should have been approved by the BOT.
When asked for evidence of approval for the appointment of the investment manager to transact this transitional investment, MINDEF referred AGO to an approval given by the BOT, which was for appointment of this investment manager seven years back for other investment services.
AGO found that the evaluation carried out by the department was not adequate.
AGO states that in order for MINDEF to invest in the US REIT ETF as a transitional arrangement, the department had to liquidate another investment to raise the required funds.
However, there was no evidence that the evaluation had taken into account all the relevant costs and benefits of the option of liquidating that investment to invest in US REIT ETF versus the option of not doing so.
AGO also noted that the department had not presented complete information on the costs of investment when seeking the Director’s approval.
In its explanation to AGO, MINDEF said that no approval was sought from the BOT as the department concerned had deemed this transitional investment to be consistent with the BOT’s approved strategic asset allocation.
However, as noted by AGO above, the BOT’s approval was for investments of $25 million each in Global REITs and US REITs to be managed by the two approved fund managers.
Following the audit, MINDEF indicated that it had informed the BOT of AGO’s observations. MINDEF also informed AGO that it had since obtained covering approval from the BOT for the appointment of the transitional investment manager for the transaction mentioned above, and it would be reviewing the processes relating to seeking approval from the BOT for investment.