Minutes:
On behalf of the Panel, the Chairman welcomed Paul Wilson of Aberdeen Asset Management, who gave a comprehensive presentation on the Interim Report in respect of Treasury Management for the Council. The presentation covered an economic summary, interest rate outlook, an investment position and a projected summary for the efficient management of the Council’s finances.
In particular, the following points were noted:
· The economic outlook had materially improved, however this would continue to be monitored in light of the extended period of low interest rates;
· Regulatory changes would impact investment approach with a requirement for investors to generate higher investment returns from longer term monies;
· There was a concern about deflation in most developed markets and this had led to extremely low bond yields;
· The US Dollar had been strong for the past year and in contrast there was now a race to the bottom of countries trying to devalue their currencies to gain competitive advantage. This caused instability in currency markets;
· Greece was trying to renegotiate austerity measures that had been put in place and the risk of instability was still quite high;
· Income inequality had significantly reduced globally;
· Central bank balance sheets have hugely expanded for many countries;
· The aim was not to deliver low yields but make sure funds were invested in highly rated counterparties with low risk of loss of capital;
· There was now a broader opportunity to set a more diversified investment approach by adding alternative asset classes to a traditional portfolio, which could improve returns with robust risk management, and this approach was being looked at to assess whether this could be an attractive opportunity;
· There was a 1% return on the Council’s investments in the current financial year with a projected 0.5% to 1% in the next financial year.
Following questions, the Chairman on behalf of the Panel, thanked Mr Willson for his comprehensive and informative presentation.
The Panel then received and considered a detailed report that set out an update on the Treasury Management Performance for the first five months of 2015/16. It was noted that the Council’s Treasury Management Policy accorded with the Chartered Institute of Public Finance and Accountancy’s Code of Practice on Treasury Management in the Public Services. The current Policy required officers to produce an interim report on investment performance to a meeting of the Panel and the report covered the performance of the treasury management function for the period 1 April to 31 August 2015. The Audit Commission report “Risk and Return”, prompted by the problems experienced by the Icelandic Banks, identified that regular engagement of elected members in the Treasury Management function was good practice.
The Head of Financial Services advised that before an investment decision was made, officers would investigate any proposed counterparty to ensure its financial rating made it eligible for investment. Even if the institution met the criteria as set out in the financial strategy, independent advice would be sought from the Council’s external financial advisors before the investment was made. The level of the interest equalisation reserve would be re-assessed in the 2016/17 budget report in February 2016.
Accordingly, the Panel noted the performance on return of investment for the first five months of 2015/16, and the current investment decisions being made within the terms set out in the Treasury Management Strategy, and agreed to recommend that Aberdeen Asset Management plc (previously Scottish Widows) continue to manage the Council’s external funds.