1. Introduction

The purpose of this policy is to establish a governance framework for the prudent management of National Library of Australia funds across two broad categories:

1. Gifts, bequests and donations.
2. Funds that are not related to gifts, bequests or donations and are not required for immediate use (‘surplus’). This includes government appropriation and own-source revenue excluding gifts, bequests and donations. These funds may be committed but not yet expended, or received, not yet committed but expected to be committed within the financial year or set of financial years for which funding has been provided.

This policy arises from two changes in the Library’s environment in recent years:

1. an increase in gifts, bequests and donations resulting from the Library’s Council approved Philanthropy Strategy; and
2. changes made in 2021 to the National Library Act 1960, permitting broader investment powers for gifts bequests and donations than apply under the Public Governance Performance and Accountability Act 2013.

The Library has four investment categories. Three of these categories relate to gifts, bequests and donations:

3. cash provided through gifts, bequests and donations for projects expected to be delivered within 2 years – short-term investment fund (STIF)
4. cash provided through gifts, bequests and donations for projects expected to be delivered over 2-7 years – mid-term investment fund (MTIF)
5. cash provided through gifts, bequests and donations for projects which are expected to be delivered over 7 years or more – long-term investment fund (LTIF).

The fourth relates to:

6. funds that are not related to gifts, bequests or donations and are not required for immediate use (‘surplus’).

2. Definitions

3. Policy statement 

The Library will invest funds from gifts, bequests and donations, and surplus funds that are not related to gifts, bequests and donations as permitted under relevant legislation and guidance for corporate Commonwealth entities.  

4. Legislative authority 

The National Library of Australia will invest funds from gifts, bequests and donations and surplus funds as permitted under relevant legislation and guidance for corporate Commonwealth entities.

This policy is subject to the National Library Act 1960 (the Library Act), Public Governance Performance and Accountability Act 2013 (PGPA Act) section 59, Public Governance, Performance and Accountability Rule 2014 (PGPA Rule) section 22A.

In March 2021 the National Collecting Institutions Legislation Amendment Act 2021 (the NCI Amendment Act) came into effect. The purpose of the NCI Amendment Act was to amend the enabling legislation of 6 National Collecting Institutions (NCIs), including the Library, to provide them with broader investment powers than are currently permitted by the PGPA Act.

The PGPA Act governs how corporate Commonwealth entities may invest funds but does not differentiate between funds received from government and those sourced from other parties, such as donations.

Prior to the NCI Amendment Act, the investment of donations by NCIs was limited to low-risk options. The intention of the amendment was to provide NCIs (within their enabling legislation) powers to develop an investment policy for donated revenue and invest for long-term benefit and improved financial sustainability.

5. Key roles and responsibilities

6. Investment protocols

The Library is an institution with a long history and long-term goals. While the Library engages in innovation and risk where there is a reasonable expectation of successful outcomes, it also plans for the very long term. For this reason, the Library’s investment stance will continue to be reasonably conservative and will aim to maximise long-term over short-term returns.

6.1 Short-term investment funds (gifts, bequests and donations)

Short-term investment funds will be invested subject to the following requirements in line with the Library Act:

1. investments can only be made on deposit with a bank or Government bonds
2. short-term investments will be distributed to the Library based on annual project expenditure (as at the end of the previous financial year)
3. endeavour to invest funds at the most advantageous interest rate available at the time of investment
4. not less than three (3) quotes will be obtained from approved institutions
5. when placing investments, consideration will be given to the interest rate offered, the credit rating of the institution, the percentage held by each institution and the term of investment as outlined in the risk and return profile.

6.2 Mid-term investment funds (gifts, bequests and donations)

Mid-term investment funds will be invested subject to the following requirements in line with the Library Act:

1. maximise return on investments over the mid-term, whilst maintaining an acceptable level of risk, without jeopardising the ongoing viability of the MTIF
2. mid-term investment funds will be distributed to the Library based on annual project expenditure (as at the end of the previous financial year)
3. investment funds will be allocated to achieve appropriate diversification to reduce risk
4. fees, brokerage, taxes and implementation costs are considered in assessing MTIF performance
5. corporate social responsibility, ensuring socially responsible investing behaviours are maintained throughout the execution of the mid-term investment funds policy.

The funds will have a single set of investment objectives and protocols that enable the acceptance of donations from multiple sources.

Management of the MTIF will be implemented through the appointment of one or more external asset managers that have responsibility for the investment of the fund’s assets.

6.3 Long-term investment funds (gifts, bequests and donations)

Long-term investment funds will be invested subject to the following requirements in line with the Library Act: 

1. preservation of long-term investment capital is the principal objective
2. similar to Private Ancillary Funds (PAFs) long-term investment funds will distribute 5% of market value of the fund’s net assets (as at the end of the previous financial year) per annum to the Library
3. maximise return on investments over the long-term, whilst maintaining an acceptable level of risk, without jeopardising the ongoing viability of the LTIF
4. investment funds will be allocated to achieve appropriate diversification to reduce risk
5. fees, brokerage, taxes and implementation costs are considered in assessing LTIF performance
6. corporate social responsibility, ensuring socially responsible investing behaviours are maintained throughout the execution of the long-term investment funds policy.

The funds will have a single set of investment objectives and protocols that enable the acceptance of donations from multiple sources. 

Management of the LTIF will be implemented through the appointment of one or more external asset managers that have responsibility for the investment of the fund’s assets.

6.4 Ethical investment restrictions

The Library will not invest in companies or indexed funds that derive the majority of their income from the following activities:

1. smoking and tobacco industries
2. gambling
3. arms trading
4. adult industries and pornography. 

This list of excluded activities should not be understood as exclusive: the Library will consider a range of ethical issues in relation to its investments.

6.6 Investment emissions reporting

The Library will report periodically on emissions impacts of investments as required under the Commonwealth Climate Disclosure requirements and the Library’s Emissions Reductions Plan. 

6.7 Surplus funds (excludes gifts, bequests and donations)

Surplus funds will be invested subject to the following requirements in line with the PGPA Act:

1. investments can only be made on deposit with a bank or Government bonds
2. surplus funds will be assessed by considering calls on cash over the period of the investment period to ensure that sufficient funds are retained as cash on call to meet the day-to-day operations and capital expenditure
3. endeavour to invest funds at the most advantageous interest rate available at the time of investment
4. not less than three (3) quotes will be obtained from approved institutions
5. when placing investments, consideration will be given to the interest rate offered, the credit rating of the institution, the percentage held by each institution and the term of investment as outlined in the risk and return profile.

7. Risk and return profile

7.1 Investment asset allocation

Investment funds will be allocated to achieve appropriate diversification to reduce risk in line with the approximate asset allocation parameters detailed in the table below.

Table 1: Library investment approximate allocation profile

Key:

• Surplus funds = non-donation funds
• STIF = Short-term investment fund
• MTIF = Mid-term investment fund
• LTIF = Long-term investment fund

Approximate Asset Allocations:

• Cash = cash or cash equivalents
• Bond / Debt = Govt bonds & fixed interest
• Equity / Alt = global / Australian equities, approved or selected alternatives, emerging markets.

7.2 Credit quality – surplus & short-term investment funds:

To be eligible for an investment the financial institution must:

1. be classified by the Australian Prudential Regulation Authority (APRA) as an Authorised Deposit-Taking Institution (ADI); and
2. have a long-term credit rating of at least BBB or a short-term rating of A-2 based on Standard and Poor’s (S&P).

7.3 Diversification – surplus & short-term investment funds:

The diversification table at Table 2 aims to maximise returns but reduce risk to an acceptable level by placing a maximum exposure of investment capital for short-term and long-term credit ratings as well as the maximum exposure per financial institution. 

Table 2: Library investment risk profile – surplus & short-term investment funds

The S&P rating will be reviewed prior to the development of recommendations regarding investment actions. Credit rating definitions are outlined in the Attachments 1 and 2. 

7.4 Return objective – mid-term and long-term investment funds:

The objective for MTIF and LTIF is to achieve a net return of CPI + 4.0% over a rolling 7-year period, noting that this is dependent on the economic condition and overall market performance. Net return is equal to returns less investment administration costs.

7.5 Diversification – mid-term and long-term investment funds:

Prudent diversification should be employed to reduce the likelihood of the MTIF and LTIF generating negative returns in a particular year. The investments for the MTIF and LTIF should be selected with the aim of limiting the chance of a negative return (in any one year) to once every 6 years.

7.6 Asset manager appointments and review – mid-term and long-term investment funds:

Appointments and terminations of external asset managers will be made by the CFO and the COO in discussion with the Audit and Enterprise Risk Committee.

The performance of the MTIF and LTIF funds and asset managers will be reviewed at least annually by the CFO in consultation with the COO and with advice from the Audit and Enterprise Risk Committee.

8. Review

This Policy has been approved by the Library’s Council (the accountable authority) and as per section 23(1) of the Library Act, it is published on the Library's website. This Policy will be reviewed 3 years after the approval date, and subsequently every 3 years.

9. Related policy documents and guidance

The following documents and/or legislation were considered when developing this policy: 

• National Library Act 1960
• PGPA Act 2013
• Trustee Act 1925
• PGPA Rules
• Commonwealth Climate Disclosure requirements.

Attachment 1

Long-term issue credit ratings *

* Ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories.

Attachment 2

S&P short-term credit ratings