Agenda item

Treasury Strategy Update

To receive a report of the Deputy Leader & Cabinet Member for Finance seeking agreement to proposed changes to the Treasury Strategy.

Minutes:

–  report  of  the  Deputy  Leader  and  Cabinet  Member  for  Finance  and Procurement,Mr Simmondsand theCorporateDirector forFinance,AndyWood)

 

(1)   Cabinet  received  a  report  seeking  agreement  to  revisions  to  the  Council’s TreasuryStrategy. TheDeputyLeader,Mr Simmonds,introducedthe report.

 

(2)   Heconfirmedthat theCounty Council hadapproved theTreasuryManagement Strategy in February2014but,owing to thechanging natureofthe economic climate,amendments werenow desirablewhich Cabinetwere authorisedto make.    Thesuggestedchangeshadbeenconsideredby thead-hocall-party group onTreasuryManagementand werein linewith the relevantcode of practice forsuch matters.

 

(3)   Cabinetheardthatthechangeswere necessaryas aresultofdevelopments sinceFebruary,these were:

 

i.    Thechanged attitudeofGovernmentsto ‘bailingout’ banksthathad experienced financialdifficultyhad increasedthe levelof riskborne by investors.

ii.       TherequirementoftheStrategythat noonebankbeinvestedin beyond £40  million  was  increasingly  difficult  to  manage  owing  to  the  limited numberofappropriatebanks thathadbeenfurtherreducedby thedown rating of RBSandNatWesttoa level thatwas notacceptableto KCC.  In addition,depositratesremainedpoor atthosebankswith whichKCC couldinvest.

 

(4)   Finally,Mr Simmondsreported thatwhere successhadbeenachievedin new assetclasses suchas‘covered bonds’ returnswere restricted bythe initial limitationson investmentset out inFebruary.

 

(5)   HeadofFinancialServices,Nick Vickers,spoketo theitem.  He reportedthatthe Councilcurrently hadapproximately £450millionon depositat anyone time. Therefore just0.1% additionalreturnwould equateto £450,000 overthe period of one year. In orderto benefitfrom improvedrates Cabinetwould need to consider variousoptions forinvestment:

 

i.      TheDebtManagementOfficecurrentlyreturned0.25%oninvestmentbut a switch to, forexample,Lloyds Bank wouldsecure0.7%

ii.       Thatthe recentinvestmentin theCCLAPropertyGroup hadreporteda return of4.66%in firstquarter ofthe yearandby incrementally increasing suchinvestmentalongside otherbetterreturning investment suchas Corporate Bondsthe Councilwould securebetterrates ofreturn without unacceptablyincreasedrisk.

 

(6)   Followingquestions raisedand commentsmadeMr Vickersconfirmedthatthe revisions tothe strategy putforward forconsiderationwere intendedto increase returnsmodestlyin orderthat the investmentremainedsafe.

 

(7)   Healso reportedthatthe TreasuryManagementStrategybeing considereddid notapply tothe SuperannuationFund.  The Fundhadseparatefundsanda separateTreasurymanagementStrategy agreed bythe SuperannuationFund Committee.

 

(8)   Mr  Simmonds  added  to  the  discussion  that  had  taken  place  by  reminding membersthat currently £42-43millionofthe£50millionaffectedby theIcelandic Bank crisishad now been recovered.

 

(9)     It wasRESOLVED:

 

Cabinet

Treasury Strategy Update

2 June 2014

1.

That the limit for investment in Svenska Handelsbanken be increased to £40m

2.

That the allocation to Covered Bonds be increased to £100m in aggregate, with a £20m limit by institution.

3.

That the maximum investment in the CCLA LAMIT Property Fund be increased to £10m.

4.

That investment to Corporate Bonds be introduced, with a maximum individual limit of £5m.

5

That investment to Bond Funds be introduced with a maximum investment in any one fund of £5m

within the investment portfolio aggregate limit of £75m

REASON

 

1- 5

In order that the Treasury Management Strategy reflects the changing financial markets and most effectively increases return whilst managing risk.

ALTERNATIVE OPTIONS CONSIDERED

None

CONFLICTS OF INTEREST

None

DISPENSATIONS GRANTED

None

 

Supporting documents: