Agenda item

The committee is requested to consider this 2017-18 mid-year review of treasury management activity and performance and to provide comments to Cabinet as necessary.

Mr Catlow presented this mid-year review of treasury management activity and performance, informing the committee of the relevant regulatory changes that would impact on the council’s treasury management activities next year.

The committee made the following comments and received answers to questions as follows:

·       Queried whether we were still struggling to find counterparties. A number of banks, due to regulatory change, were splitting their banking and retail arms, and until it was known where we would end up we were reluctant to invest with them therefore at present we had a more limited number of counterparties and a reduced maximum duration of investment with many.

·       Queried whether external funds had an equity component. These were funds invested with and managed by a fund manager, equivalent to investment in a multi-asset fund. They were not cash investments in the council’s name. M&G could have a small equity component. By investing in multi asset funds risk considerations were reduced.

·       Queried corporate bonds. These were bonds with individual companies, generally of high quality and the council preferred those with a supporting asset base.

·       Queried the definition of balance and how that squared with the definition of value and whether the two should tie up. The committee was tasked to decide whether these had been good investments however there was insufficient information to provide comfort to the committee. Returns were calculated based on the original investment therefore the reference on page 59 should probably be amended. This would be considered as part of responding to new prudential codes. The change in capital value had not been an issue for local authorities as there had been no impact however it was likely that could be amended as part of the regulatory changes going forward. Mr Catlow agreed to revisit the presentation of this information in future reports to the committee.

·       Queried external funds (showing as green) and the lack of clarity in the figures as there had been some disappointing quarters. At this time (and until updates in regulation) changes in capital value did not have a revenue impact on the council’s budgets until the investment was disposed of.

·       Queried our reliance on treasury management advisors Arlingclose for advice. The council had a four year contract with Arlingclose for professional treasury management advice. The advisor supported the accountancy team in undertaking additional treasury management research. Officers had access to a number of other websites and professional sites for information. There were not many similar advisory companies in the market. Mr Catlow, Mrs Belenger and Mr Ward had to declare to Arlingclose how we met their criteria as a client before they took us on. The contract, due for renewal in 2018, included training on site for members and access to training courses for officers.

·       Queried whether modelling had taken place to allow members to understand the parameters should there be a volatile period with a dramatic change in interest rates. The council was risk averse in building income into base budgets or financial models as a result. New regulations and accountancy changes could have a significant effect on our revenue account. Arlingclose had been requested to explain the new regulations at the training session for members on 8 December. 

·       Queried whether incentives had been included in the Arlingclose contract. Arlingclose offered advice and opportunities but the ultimate decision on investments was made by officers. The principles that underpin investments included security first and then yield.

·       Queried why the council did not have a three year forecast of expected borrowing through the Public Works Loan Board. The council does not need to borrow funds based on its spending plans.

·       Queried the cost to the council if we were overdrawn. The only time we were overdrawn was generally when an investment repayment was made late and in this instance we could recover interest from the party. It did not affect our credit rating as the council had not applied to have a formal credit rating.

·       Queried whether the council should be concerned with ethical investments e.g. arms and tobacco that could make us susceptible to reputational claims. We did not invest directly in non-ethical instruments however we had external investments in pooled funds and it was their fund managers’ decisions as to what funds were invested in.

·       Queried whether the capital loss in external funds over the last three quarters had been as a result of bonds. The most significant capital losses that we had incurred related to the entry price to the pool fund therefore this was the difference between the bid and the offer at about 7% so we were carrying that on our balance sheet.

·       Queried whether the non-met district average was last year or last quarter. It related to the last quarter.

The committee thanked Mr Catlow and his team for preparing this report. Mr Catlow took on board all the suggestions to restructure the report in order that it was more focussed to the committee’s requirements in future iterations.

RESOLVED

That the 2017-18 treasury management mid-year progress report be noted.