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3. Summary assessment

The AOFM supports Australia's economic growth and stability through managing debt on behalf of the Australian Government.

In 2014–15, the debt issuance task sat at $78 billion in gross terms. An important part of the portfolio strategy involves extending the yield curve through the issuance of longer maturities thereby reducing the Government's exposure to interest rate volatility and 'smoothing' the maturity profile of the outstanding stock of debt.

The AOFM's success is testament to an agency with many strengths and proven delivery capability.

A solid delivery capability

While small in number, the AOFM's staff is
highly skilled with strong technical knowledge of the sovereign debt market. Moreover, through its systems the auction of securities and settlement of accounts are managed seamlessly and with integrity in the interests of supporting a confident and active AGS market.

Since 2009, the AOFM has managed a six-fold expansion in the issuance programme creating a deeper and broader AGS market, generating market confidence through its engagement with central banks, sovereign wealth funds, intermediaries and investor groups around the world. It has successfully developed and executed its portfolio strategy and deployed sound portfolio risk modelling capabilities.

When called upon, the agency has competently managed various investments established with specific policy objectives. Most notably, this includes the Government's investment programme in the Residential Mortgage-Backed Securities established in 2008 to support competition in domestic mortgage lending in the wake of the GFC.

Agency documentation describes AOFM's vision as one of "excellence" in sovereign debt management. Staff enjoy and are proud of their work.

A credible and respected agency

A large part of the AOFM's delivery success
hinges on its reputation and credibility in the domestic and international government securities market.

The AOFM has built trustful and open relations with a range of investors (including central banks and sovereign wealth funds) and intermediaries who hold the agency in high regard. It is held in high regard by these external stakeholders.

External stakeholders believe the AOFM demonstrates a keen awareness of the government securities market. It has integrated quantitative and qualitative intelligence about market needs and is responsive to feedback from market participants. It also demonstrates strong risk and analytical capabilities when managing the Government's portfolio.

The AOFM is well regarded by its peers. It supports good debt management practices globally; sitting on the steering committee for the Organisation for Economic Co-operation and Development (OECD) Working Party on Debt Management.

Under the current CEO's leadership, the AOFM has adopted a national leadership role, working closely and coordinating its investor engagement efforts with state borrowing authorities. It has also greatly expanded efforts in building relations with domestic and international investors. The CEO has sought to build a more collegiate and collaborative organisation, focusing on creating an effective Executive cohort. His leadership is admired and appreciated by staff and external stakeholders.

Along with these strengths and successes, there remain opportunities to sustain delivery capability and reputation into the future.

Proactive engagement within the Australian Government

As successful and well regarded as the AOFM is among its external partners and clients, the extent of its current capabilities are not so well understood within the Australian Government.

Current activities focus on managing the Government's debt and cash requirements. At times, the agency has managed assets in line with specific policy objectives like the Communications Fund and the RMBS Portfolio. The AOFM has questioned if the capacity demonstrated through effective execution of these requirements could lead to an expansion of regular activities beyond debt and cash management. This subject is commonly discussed by equivalent debt management offices around the world.

Any extension of the AOFM's financial management role is a decision for the Government. The agency's agility and capability in managing debt and cash requirements may mean it retains capability to respond to additional activities. Regardless, it is important for the AOFM to stay focused on the efficient and effective fulfilment of its activities, and perform to the highest standard, rather than being diverted by the desire for a wider scope of activities.

As a delivery agency, the AOFM makes a positive contribution to strategic discussions on debt management. At present, its capacity to deliver high-quality market intelligence is under-utilised. The AOFM has not yet fully leveraged these opportunities or gained an appreciation of how it can usefully contribute. Creating an environment in which the AOFM's contribution is sought and recognised will in turn increase understanding of the agency and support more robust policy outcomes.

The AOFM should consider raising with the Treasury the role and operations of the AOFM Advisory Board.

At present, the Advisory Board's primary purpose is to provide strategic advice to the Secretary of the Treasury and its contributions in this regard have been recognised. At times the AOFM has also sought input from the Board on the governance and corporate affairs of the AOFM. While not an explicit responsibility under the Board's terms of reference, this assistance has been willingly provided.

Various parties have raised whether the AOFM Advisory Board as configured is the most appropriate vehicle for both roles. The Treasury and AOFM should together consider whether to address ambiguity over the Board's role. When this is resolved, the AOFM may need to examine if it would benefit from alternative governance advice.

A collegiate culture and workplace

Like many other agencies within the public and private financial sectors, the AOFM rewards and recognises technical skills. The success of the AOFM, like any organisation, depends on its technical prowess and the motivation of its people and its workplace culture, both of which rely on leadership.

Led by the CEO, the AOFM has recently been focusing on building its Executive Group into a cohort that manages the business, leads the agency and shapes its future. Members of the Executive Group have acknowledged there is much more to do in forging a new collective identity. At this stage, many staff believe the Group has yet to start modelling and communicating this change throughout the agency.

The review team noted, through agency feedback and analysis of the 2015 State of the Service census results, that the AOFM faces significant challenges with people management and staff supervision, both of which weigh on its potential performance. These challenges are evident across all parts and most levels of the AOFM.

The agency's culture is influenced by its task-based approach to work and its small team-based approach that can lead to staff working within silos. The culture is also impacted by the challenge of maintaining engagement when working in a static environment. Some staff expressed concerns about limited career development opportunities which means that the AOFM would benefit from the creation of a more positive and engaging culture. Significant opportunity exists for leadership to make some major and expeditious gains by improving the approach to and increasing its capabilities in people management. Above all else, it is imperative that the Executive Group seeks opportunities to demonstrate its commitment to a collegiate and inclusive culture and increase formal and informal communication efforts.

Furthermore, as part of any restructuring, the Executive Group should consider how to build a collegiate team approach across the agency. Equally, the group should pay attention to training and developing current and future managers in the fundamentals of people management.

Strategic human resource management

The AOFM is fortunate to have a number of long serving, highly skilled staff.

Nevertheless, the workforce is small and the requirement to hold various technical skills and expertise means limited career options for staff. Sustaining a viable workforce is an emerging challenge. Indeed, maintaining a well-rounded workforce may become even more difficult if there is a lift in overall activity and recruitment in the financial sector and if the trend continues of younger staff looking for multiple careers over their lifetimes.

While the AOFM has taken some steps in thinking about how it can sustain a skilled and capable workforce, a more proactive approach is required for staff development and broader succession planning beyond contingency planning.

At present, succession planning focuses on the immediate replacement of critical staff. The review team believes the AOFM needs to think more broadly and deeply about how to support staff with high potential, including by establishing career paths for them and filling gaps in current capabilities.

Development of existing staff is centred on enhancing the knowledge base needed to fulfil existing roles, not necessarily on enhancing individual capabilities to do what is required now and take on other responsibilities. To achieve this, the agency should invest in formal and informal personal and career development opportunities for its APS and EL staff, building not just technical but managerial and leadership skills. This could include mentoring and coaching options, secondment options within government and industry, and making the most of overseas postings.

It is necessary to build a model of diverse skillsets across the groups and make some possible structural changes to reduce the AOFM's exposure to critical person risks. Developing and implementing a workforce strategy that identifies the preferred future state and sets out a path for achieving that state will enable the AOFM to enhance the skills of its staff with higher levels of motivation.

In respect of bringing new staff into the agency, where opportunities arise to hire new graduates, their career development could be linked into the Treasury's graduate program, which provides development and rotation opportunities. Where appropriate, the agency should continue to recruit additional capacity or specialist skillsets.

In summary, the review team believes the AOFM will benefit from greater attention to its strategic human resources management.

This will address a growing risk the AOFM faces, support engaging existing staff and create a high-performing workplace. It will also give the Executive Group a chance to demonstrate its commitment to staff and show how it can work collegiately in the interests of the agency.

Indeed, if the AOFM can improve on its strategic human resources management, more effectively motivate its workforce, align its culture, offer staff a clear strategic direction and better engage with and work within government, it will see its people and organisational capabilities extended and realise a promising and rewarding future.