This report asks the Board to receive and to note the contents of this report which sets out the Council’s treasury management activity and performance for 2012/13.

The Head of Finance submitted a report (previously circulated, now appended) that outlined the Council’s treasury management activity and performance for 2012/13.

Nigel Kennedy (Head of Finance) presented the report to the Board and provided some background and context.

Scrutiny Recommendations

The following recommendations were submitted:-

Recommendation 1: To raise the non-specified investment limits from their currents levels and redefine what is grouped in this area to manage risk, in an effort to encourage investment diversity and higher rates of return. 

Response: The limit on non-specified investments contained within the Treasury Management Strategy agreed by Council in February 2013 is 25% of the total investment portfolio. Non- specified investments are considered inherently more risky in nature, but are used to increase the diversity, the number of counterparties. 

The Council already makes use of non-specified investments including non-rated building societies and to a limited extent property funds. The Council is actively considering placing further deposits with property funds to gain higher rates of interest. However, property funds require longer term investments which are more illiquid.  

As a consequence the 25% limit is considered reasonable given the level of ‘core cash’ held and our advisors assessment of the amount of risk the council should bear.   

Recommendation not accepted by the Board.

Recommendation 2: Wherever it provides for good value for money to consider using investment funds for internal borrowing in order to avoid prudential borrowing.

Response: Agreed - where it provides better value for money the Council will continue to use internal rather than external borrowing, i.e. where the return on investment income is less than interest payable on PWLB loans.

Resolved to note the report.

The Panel was pleased to see good performance against prudential indicators and that the budget target for investment income is on track to be achieved. However, this was due to higher than expected funds rather than meeting the target rate of return. A number of recommendations are presented for consideration by the City Executive Board around the management of the investment fund.

Conclusions and Recommendation

The Panel noted the high levels of investment balances with a peak of £64m in June.  It seems likely that these levels will continue going forward.  The management of this level of available investment with falling average rate of return is a concern to Panel.

Opportunities taken by officers to invest in property funds have been successful and the Panel welcomed this diversification but noted the limits placed on non-specified investments would limit opportunities.  The Panel wants to see a change in this area. 

Recommendation 1

To raise the non-specified investment limits from their currents levels and redefine what is grouped in this area to manage risk, in an effort to encourage investment diversity and higher rates of return. 

Recommendation 2

Wherever it provides for good value for money to consider using investment funds for internal borrowing in order to avoid prudential borrowing.