FOUR statutory boards have suffered paper losses from investing in credit-linked notes, Parliament was told yesterday.

This follows news on Monday that eight People's Action Party-run Town Councils have about $16million invested in troubled structured products.

To what extent have stat boards been hit?

Where did the money come from?

What is their threshold of risks?

Here's what transpired, based on Finance Minister Tharman Shanmugaratnam's speech and an e-mail response by a Ministry of Finance spokesman:

Why do statutory boards have surplus funds?

They keep some surpluses for future capital expenditures and as a buffer against unanticipated spending needs or budget shortfalls.

What guidelines do statutory boards follow in the management of surplus funds?

After taking into account their cashflow and liquidity needs, they manage and invest these funds in financial assets to earn an appropriate return within acceptable risk limits.

Each statutory board has to ensure that an appropriate investment management structure is in place for proper oversight of its financial investments with prudent risk management.

Are any statutory boards exposed to structured products or credit-linked notes related to Lehman Brothers?

No.

What about structured products or credit-linked notes which are unrelated to Lehman Brothers?

Four statutory boards - the Civil Service College, Singapore Land Authority, Infocomm Development Authority and the Professional Engineers Board - have exposure to other credit-linked notes in their investment portfolio.

These are unrelated to those which have had early redemption triggered.

Have statutory boards invested in other products linked to collateralised debt obligations (CDOs) or credit default swaps (CDSs)?

One statutory board has investments linked to CDOs and CDSs, but these make up only 0.1 per cent of its portfolio and have actually made a net gain over the year.

How much did the four boards that have invested in credit-linked notes lose?

These notes have suffered a 14 per cent paper loss this year.

This was not very different from the returns in global asset markets generally.

Are the notes held by the four boards high-risk products?

No, they are not necessarily high-risk.

None of the underlying entities and assets referenced to by these credit-linked notes have defaulted or had early redemption triggered.

How does the proportion of the investment on these notes compare to the total investment portfolio of all statutory boards?

The total investment of the four boards on these notes consist of only 0.05 per cent of the total investment portfolio of all statutory boards.

How has the loss affected the overall returns to their investment portfolios?

The same four statutory boards have had positive returns on their overall investment portfolios this year, averaging about 2 per cent.

For the past three years, the average annual return on their investment portfolios was 3 per cent.

What are the four affected statutory boards planning to do?

They are monitoring the situation on all their investments, and will take the necessary measures to minimise any losses in these investments.

This article was first published in The New Paper on November 19, 2008.