Charities face investor risk

08/10/2008 - 22:00

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THE sub-prime mortgage crisis could adversely affect some of the state's more conservative not-for-profit organisations, with a number having invested in complex financial securities called collateralised debt obligations.

Charities face investor risk

THE sub-prime mortgage crisis could adversely affect some of the state's more conservative not-for-profit organisations, with a number having invested in complex financial securities called collateralised debt obligations.

As more charities and benevolent institutions reveal their exposure to high-risk securities investments, there are fears the disaster could affect their services.

WA Business News can reveal at least four Western Australian not-for-profit organisations are holding CDO investments.

It is believed that, nationally, hundreds of churches, charities and councils have been affected by the crisis, facing hundreds of millions of dollars in losses.

Relatively high-profile and well-respected institutions such as the Starlight Children's Foundation, the Uniting Church of WA, and Silver Chain Nursing (WA) have invested in CDOs.

Unlike some local governments, however, it has emerged that these organisations were not the victims of an aggressive push by firms to sell CDOs, but rather willing participants seeking a high return on their investments.

In recent weeks, financial experts have warned that even non sub-prime CDOs could potentially add to the sub-prime problems.

Uniting Church of WA associate general secretary resources, Robert Locke, said the church was holding $4 million in non sub-prime CDOs and was "concerned" but not worried.

"Some were Grange [Securities] CDOs, some weren't, but for now all we are doing is sitting back and monitoring the situation," he said.

Mr Locke said the investments, made about five years ago, strictly adhered to the church's prudent investment policy, which prohibited sub-prime-exposed products.

"Grange approached us as did a lot of people; I take phone calls from a variety of people all the time, that's my job, to see what's out there," he said.

"Ours is a balanced fund, we have equities and fixed interest, and these CDOs we've got make up less than 5 per cent of our total investments, so we have little risk.

"I made it quite clear to Grange at the time that we didn't want any exposure to sub-prime."

Starlight Children's Foundation spokesperson Anne Johnston revealed that Lehman Brothers Australia, which bought Grange and provided the majority of CDOs in WA, stopped managing the not-for-profit organisation's investment portfolio in April.

She said the foundation did not have any exposure to sub-prime instruments and that its CDO investments were made with fiscal prudence.

"Starlight retains expert advice on its investment portfolio with due regard for all standards, procedures, requirements consistent with its charter and its registered not-for-profit status," Ms Johnston told WA Business News.

She said Starlight's currents CDOs would be held until maturity, between 2010 and 2016.

Silver Chain Nursing said the global credit crunch had forced the organisation to reassess its investment strategies and distance itself from CDOs.

Silver Chain finance general manager Michael Bowd said while the organisation departed from a high-risk securities investment in April, no investments had links to sub-prime mortgages.

"The CDO wasn't particularly embarrassing, it's just that when the market turned we started moving away from equities and other markets and moved towards cash investments," Mr Bowd said.

Nationally, St Vincent de Paul Society has invested in CDOs, however its WA branch has not invested in the high-risk securities

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