PIF Release Formula Confirmed

The level of annual release payments from New Plymouth District Council’s Perpetual Investment Fund (PIF) is to be based on a release formula regarded as international best practice and used by leading perpetual fund managers worldwide.

The formula, which is used for the highly successful Yale University Fund, was recommended by the PIF’s fund managers Taranaki Investment Management Ltd (TIML).

It has two main goals:

To provide greater certainty to the council and community on the annual release payment from the fund, by smoothing out the effects of market volatility.
To ensure the fund can be maintained for the long term and that release payments are available to future councils to reduce rates bills for generations to come.
TIML Chairman John Armstrong says: “This formula is world best practice for perpetual funds which have a requirement to make regular release payments.

“We all know that markets go up and down and it’s important that we have a release formula that minimises the impact of these fluctuations on the amount TIML can release from the fund to the council each year.”

Under the new formula, each movement – up or down – of $10 million in the year-end value of the PIF will equate to a movement of $100,000 in the amount received by the council.

Mayor Peter Tennent says: “This is all about shielding the council and the community from major movements in the markets and at the same time maintaining the fund for the benefit of generations to come.

“The annual payment from the PIF is used in its entirety to reduce people’s rates bills.

“It has a large role to play in keeping our rates among the lowest in the country and it’s crucial that we maintain this so the benefits of the fund can be enjoyed by our children, and their children and so on.

“This is why we called the fund perpetual. We want it to last forever and this new release formula will help us to achieve that.”

The release formula will come into force from 1 July 2009 and has two parts – an historical release portion (A) and a growth portion (B):

A. Provides for 80 per cent of the previous year’s release payment (adjusted for CPI inflation); plus

B. Provides for a 5.6 per cent release based on 20 per cent of the previous audited year-end value of the PIF, again adjusted for CPI inflation.

The current annual release from the fund to NPDC of $21.5m was fixed for three years ending 30 June 2009.

Coincidentally, the new formula calculates the release payment for the council’s 09/10 financial year as $21.5m ($17.72 million, based on A above, plus $3.77 million based on B above).

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