Bill Lewis, Financial Accounting Manager, will be presenting the Treasury Mid-Year report. The Panel is asked to consider the report and make any recommendations to Cabinet accordingly.

Bill Lewis, Financial Accounting Manager, presented a report to the Panel on the Treasury Management mid-year Review.

The report was introduced as seeking to make a change to one area, to broaden Indirect Property Funds counterparty category to include Pooled Investment Funds, which would widen the Council’s opportunities to invest in areas, for example, such as social impact bonds which would not necessarily relate to property. The current budget had £10 million allocated to be invested into property funds specifically, but a broadening of the terminology would allow a greater diversification, thus reducing risk.

In considering the impact of the wider economy on the Council’s treasury position, the uncertainty relating to Brexit and the final shape of the UK’s relationship with the EU was recognised as being a significant challenge to making confident forecasts. The Council was working on the advice that some form of Brexit deal would be reached.

Investment levels were identified as £112m and had returned £0.5m above the budgeted sum. This was explained to be partially due to money having stayed invested for longer rather than going to the Housing Company, thereby allowing greater returns.

Looking at the Council’s property fund investments, healthy returns had been made from both the CCLA fund and the Lothbury fund from the time of investment. However, it was noted that their had been some recent tail-off in value, which was not attributed to regular variations around the proximity of dividend payments but due to the pressure on retail. The costs of repositioning portfolios away from retail had meant a lower unit value.  This provided greater surety against adverse future conditions in the retail market and it was reinforced that the Council still had a significant buffer before capital losses were realised.

The Council’s short term expectations for borrowing were reported to be a maintenance of existing borrowing within the HRA.

Following the presentation of the report the Panel raised questions over the status of a number of the investments referenced in the report, particularly Green Deposit Notice Accounts, which were explained to be six month notice accounts with variable, but stable, rates of interest. Due to the ownership of the fund being Barclays, the accounts were reported to be ultra-low AAA risk-rated.

The Panel sought information on what the rates of interest the Council would expect to face on its borrowing if there were to be a no-deal Brexit. In response, it was explained that estimates amongst experts varied considerably, making accurate forecasting difficult. It would be possible to present a range of possible outcomes, but making any prediction with a high degree of uncertainty would be harder. It was clarified that the Council’s PWLB borrowing was fixed at the time of borrowing and would not be subject to significant increase in the event of a no deal Brexit. On the basis of this, it was discussed whether the Council should be growing its borrowing whilst rates were low. Though the Council had looked at the possibility, it was not currently being acted upon due to the fact that the Council would be paying interest on their borrowing, and due to greater stringency in the PWLB’s vetting process it was not possible to make carry trades. The reason the Council had been able to borrow to lend to OCHL was due to OCHL’s house building being considered a capital scheme rather than an investment, a service to the community rather than a money making venture.

Discussion was held over the Council’s asset allocation. The reason for looking to invest in multi-asset funds over property funds was that it would reduce risk by spreading investment exposure over multiple investment categories, not all of which would be expected to face a downturn at any one particular moment. Though it was possible for the Council to invest more aggressively, it was reiterated by officers that the Council’s primary investment criterion was security, with liquidity and yield being secondary and tertiary considerations respectively. Nevertheless, it was also recognised by officers that the Council was looking to make increased investments in social impact bonds and multi-asset funds. Further, as capital schemes were realised the money to pay for these would reduce the balance of high-liquidity holdings by the Council, meaning an increase in relative percentages being invested in higher-yield assets. It was not possible to put a precise figure on the level of return from multi-asset  funds as the Council was still investigating the market, but the expected rates of return were anticipated to be between 3-5%.

The Panel NOTED the report.