For the information of the committee, the Office of the Accountant of the Courts Service manages some €1.8 billion - maybe a higher figure was mentioned earlier, though that is not to say it is an insignificant amount - on behalf of more than 20,000 beneficiaries. Those include the 2,600 or so wards of court. There are currently six investment strategies reflecting the different investment requirements of everyone within the remit of the accountant's office. My main focus will be on the growth fund, because that is where certain wards of court funds are invested.
We are fully aware of the concerns of the Justice for Wards group and indeed individual committees and their families, where there is a possibility that funds related to those they care for are being depleted and could in some cases run out in the years ahead. However, the group's singular focus on the investment performance of the growth fund, as the main factor causing the depletion of funds, is misguided and is not factually correct. I will come back to this point in a moment.
Court funds are invested in line with the provisions of the Trustee (Authorised Investments) Act 1958 and subsequent orders. The funds we invest in through our fund managers are regulated by the Central Bank. When deciding where and how to invest court funds, the overriding objective is the achievement of an optimal total financial return, having regard to the need for liquidity and capital security, taking account of income generation and capital growth requirements. Where there is a requirement to generate a high return to sustain the value of the funds for the longest period possible, such funds will be invested in the growth fund.
I will refer to the governance arrangements which were mentioned earlier. These arrangements were put in place in 2002 following two comprehensive external reviews, one by the National Treasury Management Agency, NTMA, and the other by Mercer Investment Consulting. It may also be of interest to note that, in a completely unsolicited review carried out by Key Capital and PricewaterhouseCoopers, PwC, in 2014, they found that the approach the Courts Service has taken to having a balanced portfolio for wards of court who require protection from inflation associated with long-term care was an example of best practice. I will not go into those governance arrangements in detail but they include the investment committee, independent advisers, fund managers, publication of our annual financial statements and the audit of financial statements.
I will now deal specifically with the growth fund. The investment objective of the growth fund is primarily to achieve capital appreciation over the medium to long term. This is necessary, in certain cases, to provide for expenditure over the projected lifetime of the ward of court. It is claimed that substantial losses have been suffered by wards of court in this fund. As far as we can establish, the only basis for this is an article in a Sunday newspaper, in the immediate aftermath of the financial crisis. We find that article misleading and inaccurate.
We have reviewed all ward cases in the growth fund during the financial crisis. The vast majority of cases actually realised gains when units were sold during this period. This was possible as in the majority of cases sufficient gains had been accumulated since the funds were first invested in the growth fund. In a minority of cases where losses were incurred the amounts were quite small and have to be viewed in the longer term which this fund was designed for.
The Aon Hewitt report of 2016 which was commissioned by the Courts Service in response to the Committee of Public Accounts report of July 2015, found that the Courts Service adopted a “least risk” approach to investment. The level of risk taken was prudent and consistent with ensuring that the value of the funds available for the care of the ward was enhanced to provide for their care over the longest period possible. It also found that the growth fund was an appropriate strategy for those with long-term care needs.
The decision to focus on investment performance as the sole factor that could contribute to the depletion of funds, and within that the narrow period of the financial crisis in 2008, ignores a range of other factors that actually have contributed to the depletion of funds. There also appears to be a presumption that the compensation awarded by the courts is intended to provide for all of the ward's care needs for his or her lifetime. This may not be possible in all cases. Factors such as contributory negligence or the nature in which the award is determined can result in an amount that will not meet the lifetime care needs of the ward. Furthermore, awards made 30 or more years ago may well prove to be inadequate. It can be quite difficult to predict what will happen over an extended life period. The person may live longer, or there may have been unforeseen expenses such as medical inflation. The shortcomings in that system have been recognised by the Law Reform Commission, which has produced a number of reports, including recommendations about the introduction of periodic payments. Legislation is awaited to deal with this matter. However, as has been recognised, this will not be applied retrospectively.
It should also be noted that the Courts Service has no input whatsoever into the judicial process which determines the amount of damages awarded. It has to deal with the outcome of the court case and, taking all circumstances into account, make investment decisions that seek to prolong the value of the sum awarded in the best interests of the ward. The level of expenditure, very often requested by the committee or family, and incurred to care for the ward, will obviously reduce the available funds over time. However, what we can say is that the investment performance of the growth fund has not been a contributory factor to the depletion of court funds. In fact the opposite is the case. We have never denied that the growth fund, which has an equity element, experienced a drop in value as a result of the financial crisis during 2008. However, just because there was a drop in value in the unit price does not mean that an actual monetary loss arose. That would only arise if units were sold at that time at a price below which they were purchased. It is also necessary to take account of the performance of cases invested in the growth fund over the longer term, and not solely focus on the period of the financial crisis in 2008.
Appendix A shows that there has been a cumulative growth in that fund of almost 90%, which is an average return of 6.5% over the past 14 years. This includes the impact of the financial crisis. It shows that when the fund dropped in 2008 it was still 22% or 23% up on what it was when it was established. This explains why losses would not have been realised in a number of cases. The performance, even at the lowest point, was above the performance of other funds which might have been regarded as less risky. That has to be taken into account. The recovery of the unit price since 2009 has been quite extensive. The drop in value in 2008 was fully recovered long ago.
The implication in some of the points raised by the Justice for Wards group is that wards of court funds, which have been invested in the growth fund, should not have been exposed to the type of fluctuations experienced by the growth fund. The alternative would have been to place the ward's fund in a fund made up of a combination of cash and bonds, perhaps with a much lower level of equity. We have funds like that, and over the equivalent period the performance would have yielded approximately 35%. There is a significant gap between the growth fund and another fund that might have been regarded as less risky. If the money had gone into the less risky fund we would have achieved 35% over the past 14 years as opposed to 90%. That has to be a relevant factor as well. We have looked at a number of cases, and if the money had been invested in the lower risk and lower return fund the funds probably would have been depleted long ago. By placing the funds in the growth fund the growth achieved has extended the purchasing power of those funds.
The Justice for Wards Group has claimed that a number of individuals have suffered very significant losses. We have looked at all the cases, and we can find no evidence of very significant losses. There were a small number of cases where there were small amounts of loss. It has been mentioned that there are statements available that support the significant loss. We have not seen those. We are happy to provide individual statements to the committee, if the members are happy for us to do that, that prove over the longer period how well this fund has performed.
Thank you for listening and we are happy to take any questions.