Agenda item

This report sets out an update on treasury management performance for the first six months of 2017/18.

Prior to considering a report that updated members on treasury management performance for the first six months of 20171/8, the Panel received a presentation from Nazmin Miah, Senior Client Consultant of Link Asset Services.  The presentation covered a market update, the Council’s investment options and potential changes in the treasury management sector affecting local authorities.

The presentation highlighted that there was significant uncertainty in the economy and the market was very fragile.  Borrowing was cheap at the moment but investment on cash returns low in the near term.  The majority of Council’s investment portfolio consisted of a mix of liquid funds, which yielded 0.57%.  The Aberdeen fund was an ultra-short fund that provided a constant, steady yield. The portfolio also invested in a Building Society with a BBB+ rating, which was yielding well.

In respect of current developments in treasury management, it was highlighted that the CIPFA Treasury Management Code and Prudential Code had been revised and were due to be published imminently. These had last been reviewed in 2011 and one of the aims of the review was to address the “commercialism” agenda and “non-treasury” investments.

A Government consultation on the capital framework was due to close shortly. Local authorities were required to follow DCLG investments guidance.  It appeared that the requirements would be fair. Local authorities already had the power of competence and would now be able to exercise this in respect of investments as long as decisions were proportionate.

Prior to taking her leave of the meeting, the Chairman thanked Ms. Miah for the presentation, stating that the Council was very proud of its finance team but it was helpful to know that additional help was at hand.

The Strategy and Resources Committee agreed the Treasury Management Strategy for 2017/18 at its meeting in March 2017. Current policy required Officers to produce an interim report on investment performance and this report covered the period 1 April 2017 to 30 September 2017.

The Chief Finance Officer highlighted that the Council had reduced the amount of money invested with Aberdeen Asset Management plc and utilised the money rather than borrowing at 2.5%.  This did not preclude re-investment of funds at a later date should the markets change.

Despite low returns, investments for the first six months met the profiled budgeted income for the same period, with an average annualised return on investments of 0.53%. The return made on money market funds of 0.14% was higher than the benchmark of 0.11%.  Investment in money market funds had been limited to short-term investments from surplus funds which would need to be called back with no notice required. Current strategy and recent guidance obtained from the Council’s independent financial advisors was to limit fixed term investments to a period of one year until there was improved stability in within the financial markets.

The necessity to hold around £589,000 by year-end in the Interest Equalisation Reserve was queried. The reserve enabled variations in investment returns to be accommodated within the general fund budget without having an adverse effect on the levels of funds available for the delivery of services in year.  Without this reserve, the Council would currently have to find £41,000 from elsewhere to maintain service delivery.  The level of this reserve was kept under review and periodically re-assessed.  However, with base rates and investment returns at historically low levels, and with no immediate sign of these increasing, the funds in this reserve could erode at a time when the funds in it were needed more than ever.

Having noted the performance on return of investments for the first six months of 2017/18 and the current investment decisions being made within the terms set out in the Treasury Management Strategy, the Panel supported the decision to continue to place the management of the Council’s external funds in the hands of Aberdeen Asset Management plc.