Agenda item

Arising from the Sub-Committee’s meeting on the 24^th September 2021, a report was presented to update Members about the process to identify an appropriate investment portfolio to support the Council’s medium-term financial objectives and an approach to future decision making for such investments.

Building on the analysis previously undertaken by Link Group (the Council’s treasury advisors) and with their further support and guidance, the report proposed a conclusion to the process. It explained that future fund selections would have to be cognisant of:

·           the fact that the Council’s revenue budget relied on approximately £500,000 per annum of income from the four funds currently holding £12 million of investment and that, given the current budget pressures, there was little scope for pursuing a strategy that would generate less revenue income; and

·           the current reliance on the ‘statutory override’ (of usual accounting practice) which meant that the Council’s revenue budget was not impacted by annual gains or losses in the capital value of investments, unless they were withdrawn.

The current ‘statutory override’ was in place until 31st March 2023 and the Government had not yet decided whether to extend it. The outcome would influence future investment decisions as removal of the override would heighten the need to avoid capital losses (which would have an adverse impact on the revenue budget) whereas retention would make higher income funds more attractive and capital performance less of a concern.

In light of the above, the report contained:

·           an analysis of the performance of the four funds in which the Council was currently investing (namely the CCLA Property and Diversification Funds; Schroders Credit Fund; and UBS Multi Asset Fund*) which concluded that the Council should remain in the funds until capital values had recovered to at least the amount invested;

* the Council had previously decided to cease re-investing in its peer to peer loans with Funding Circle and to withdraw funds as those loans were repaid

·           commentary on the total sum which the Council should be investing with counterparties, based on current surplus cashflow projections – this advised that the current £12 million could be retained in the knowledge that the Chief Finance Officer (under powers provided within the Financial Regulations section of the Constitution) was authorised to change the balances invested in light of significantly reduced or increased cashflow scenarios.

The report suggested criteria for future adjustments to the Council’s investment portfolio but concluded that no changes be made for the time being. 

Nazmin Miah (Link Group) and Haley Woollard (Treasury Centre of Expertise via the Joint Working Arrangement for finance services with Surrey County Council) supported officers with the presentation of the report and in responding to Members’ questions. Discussion focused on the implications of the ‘statutory override’ not being extended, including the likely timeframe for having to adjust the current portfolio before the General Fund became adversely affected. Officers confirmed that, while the Government’s decision on the override was awaited, plans in response to various scenarios would be developed.    

Officers also confirmed that improved cash flow balances could provide the required confidence to invest more of the Funding Circle proceeds (i.e. to add to the £12 million referred to above). The report recommended that authority be delegated to the Chief Finance Officer to amend the investment balances in light of significant fluctuations in cash projections. It was agreed that such delegation should be made subject to consultation with the Chair of the Sub-Committee.   

            R E C O M M E N D E D – that:

A.      the medium-term objective to balance a sustainable level of investment income against the stability of fund value, taking a considered approach to risk management in a changing investment environment, be noted;

B.      the strategy to provisionally retain current investments (excluding Funding Circle which will continue to wind-down) until a decision has been made by Government on whether to extend the current ‘statutory override’ (which prevents gains and losses in capital value impacting on the revenue budget) be approved; 

C.      if the override is not extended, approval be given to disinvest from the following three funds at a point where their capital value recovers to at least equal to the amount invested, or if it is clear that their capital value will not recover further:

·                Schroders Credit Fund

·                UBS Multi Asset Fund

·                CCLA Diversified Fund

D.      it be noted that the intended strategy is that, if the ‘statutory override’ is not extended, the Council intends to re-invest amounts in funds representing the best overall return (through combined capital value and revenue income) in a ratio considered proportionate with the overall fund size; currently these would be as follows:

·                Royal London Assets Management (RLAM);

·                Legal and General Investment Management (LGIM); and

·                Newton Multi Asset Income Fund (Newton MAIF)

         but fund performance would need to be re-confirmed before any deposit was made and this will be reported back to the Sub-Committee once a decision is made by Government;

E.      the retention of the CCLA Property Fund, offering strong capital and income performance and providing diversity to the overall portfolio, be approved;

F.      the balance in the four funds should be retained at a level commensurate with latest projections of long-term cash availability and authority be delegated to the Chief Finance Officer, in consultation with the Chair of the Sub-Committee, to amend the balances invested in the funds as necessary to retain a prudent working capital balance; and

G.     it be noted that the constitution delegates the execution and administration of treasury management decisions and borrowing strategy to the officer designated for the purposes of Section 151 of the Local Government Act 1972 (i.e. Chief Finance Officer).