We were surprised to find the Government’s Retail Deposit Guarantee Scheme doesn’t cover Bonus Bonds. So if the scheme’s assets lose a lot of value and the losses can’t be met out of the reserve fund, investors may face significant capital losses. There’ll be no government bail out.
Credit rating
The credit-rating agency Standard & Poor’s has given the Bonus Bonds portfolio an “AAAf” fund rating – its highest possible rating. This means it believes the investments in the portfolio are unlikely to fail.
Asset portfolio
The Bonus Bond asset portfolio is restricted to “low risk” debt securities. This is not embedded in the trust deed, but achieved through an “investment objectives and policy” agreement approved by the fund manager’s board of directors after consulting with the scheme’s trustees (Trustee Executors).
While there’s no suggestion that the current investment policy will be altered, the Bonus Bond prospectus makes it clear the scheme’s “investment objectives and policy” can be changed at any time if the fund manager and the trustees agree.
In theory, the portfolio could include just about anything – shares, insurance and underwriting contracts (the cause of high-profile financial collapses such as Credit Sails), even unsecured personal loans. That’s as well as loans to the fund manager or trustee, or to parties related to them.
Related party lending
Around 25 percent of the Bonus Bond asset portfolio is held in corporate bonds and the balance is held in bank investments (including all the major banks), government bonds and local authority investments. The scheme’s trust deed allows funds to be invested in companies related to the fund manager.
At the moment around 18 percent of the portfolio is made up of “related party” loans to ANZ/National Bank, the fund manager’s parent company.
The trust deed places no limit on what percentage of the fund can be invested in any one company – including any “related-party” company. However, a spokesperson for ANZ told us the upper limit on exposure to any one company was 20 percent. This is a condition of maintaining the “AAAf” Standand & Poor’s rating
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