The Head of Financial Services has submitted a report on the performance of the Treasury Management function for the 6 months to 30 September 2020.

Recommendation: That Cabinet resolves to:

1.    Note the performance of the Treasury Management function for the six months to 30^th September 2020

The Head of Financial Services had submitted a report on the performance of the Treasury Management function for the 6 months to 30 September 2020.

Councillor Turner, Cabinet Member for Finance & Asset Management, introduced the report. At a time of low interest rates this was always going to be a challenging area. He had been paying particular attention to investment funds. The Council’s interests in both the CCLA Property  Fund and the Lothbury Investment  Fund remained at a higher value than when acquired.

Cabinet resolved to:

1.Note the performance of the Treasury Management function for the six months to 30th September 2020.

The Panel is recommended to consider the Treasury Management Mid-year Report and make any recommendations to Cabinet accordingly.

Bill Lewis, Financial Accounting Manager, will be available to present the report and answer any questions.

Bill Lewis, Financial Accounting Manager, introduced the Treasury Mid-Year report to the Panel. In introducing the report, it was underlined that the economic overview and interest rate forecasts were represented the facts on the date provided and were subject to revision in light of major economic events. Highlighted as greatest interest to the finances of the Council was the investment income forecast, which was down from the budgeted £1.223m to a forecast figure of £1.044m. Whilst there had been falls, the Council’s fixed term investments had insulated it partially from wider falls, but those effects would become more keenly felt with the passing of time. The Council’s new investments in multi-asset funds were progressing, with the on-boarding of the two preferred funds taking place and signing of contracts for the £5m investment in each early in 2021. Falls in the value of property funds were highlighted, though a recent upturn in capital values was also noted. Dividend rates had remained stable. Overall, performance remained within the tolerances of the Council’s prudential indicators as set out in its Treasury Strategy.

In its Scrutiny of the report, more information was sought about the basis of the Council’s forecast reduction in investment returns. The key contributor was explained to be the fall in fixed term investment rates, which had fallen from the region of 0.7 – 0.8% to closer to 0.3%. As existing fixed term investments expired they would be reinvested at the lower rate, reducing returns. Fluctuations in cash flow, due to increased spending related to Covid and receipt of government grants related to the same also meant that the Council had greater liquidity requirements, reducing the overall amount invested in higher-paying long term investments rather than money markets.

It was also questioned whether the Council was in a position where any of the investments which had seen a fall in capital value would need to be liquidated and the losses realised. It was confirmed that the property funds, which had seen the biggest fall in capital values within the portfolio, were long term investments providing a strong income and the Council did not intend to sell them.

The Panel questioned the expected rate of return from the Council’s multi-asset funds. Although the rate of return was not fixed and would be dependent on the performance of the fund, the anticipated return was set at 3%. This level was a conservative estimate, based on the previous performance of between 4 and 4.5%.

The report was NOTED.