Agenda item

– reportof Mr JohnSimmonds,DeputyLeaderand CabinetMember for Finance& Procurementand Andy Wood,CorporateDirector ofFinance and Procurement).

(1)     Cabinet receiveda reportseeking agreementto proposedchangesto the Council’s TreasuryStrategy, principallyby expandingthe rangeandtypes ofinvestmentwhich could bemade.

(2)     TheLeaderofthe CountyCouncil, MrPaul Carter,reportedthat MrBird, local memberfor MaidstoneCentral had requestedand receivedpermissionto address the meetingon thisitem.  MrBird came to the tableand spoke tothe item.He agreed withthe motivationforchanges statingthat returns on cash investmentswere currently negligibleand on suchsignificantsums ofmoneyas were availableto the councilit wasright thatlong terminvestmentsin higherreturnareaswere sought.  However,he did havesome concernsabout the informationcontainedwithin the report andhe set themout as follows:

(i)      Thatseekinghigher returnswould meanthe acceptance ofhigher risk.  Capital markets,includingequity incomefunds,by design,would fluctuate. Theperformance ofthe FundManagerwould be crucialto managingthis risk and that as such the choiceofmanagerwould be criticalto the success of any amended strategy.He welcomedthe due diligence proposedwithin the recommendationsofthereport.

(ii)     Thatproceduresby whichan opportunityfor investmentwere authorised mustbe open,transparent andproperly recordedand reportedwithout negatingthe council’sability to investquickly.

(iii)   Thatthe strategy recommendedthat £75million be reallocatedin the wayit described but thata limit oughtto beplacedon each individualtransaction delegatedto officersand the FundManager.

(3)     TheLeaderclarifiedthat the reportrecommendeda £5million individualinvestment limitwhich MrBird welcomed.

(4)     TheDeputyLeader& CabinetMemberforFinanceand Procurementspoke to the item;he introducedthecentral recommendationsand reasons,and respondedto the commentsmade byMr Bird,by reportingthat:

(i)      TheKent CountyCouncilTreasuryManagementStrategy,and thewayin which itwas modified and reportedcompliedwith the CIPFACodeof Practice.Thatthe Strategywas not apolitical issueandas such the TreasuryAdvisoryGroup (TAG) whichmet on an adhocbasis to considerit was madeup ofmembersofall politicalgroups.Mr Simmondsexpressed regretthat Mr Birdwas nowuncertainabout the changes havingbeen present ata meetingwhereall partyconsensus had beenreachedon the changesnowbeforeCabinet.He hopedthatas he spoke MrBirds concernsmight be allayed.

(ii)     Therateofinterestondepositshad continuedto be low and asa result debtshad been repaidrather thanrefinanced.  Thecurrentapproachwas verycautious; to illustrate thishe reportedthat DebtManagementOffice Depositreturneda rateof0.25%.  Australianand Canadianbanks had been investigatedas previouslyagreed but had not offeredany significantlyimproved returns.Depositrates continuedto reduceas a resultofthe currentfinancial climateand governmentactions intendedto reducethe impactofthe recession.Thereforethe council must lookto varyits investmentstoincrease returns,althoughhe acceptedthat the risk would alsoincreaseheargued thattraditionalinvestments withbanks was no longeras safeas ithad oncebeen.

(iii)    ThePensionFundhadalready implementedsuch changesand wasand had successfullyprotectedits value.

(iv)    Theexpectedreturnon the newinvestment areasidentifiedwas thoughtto be approximately5% thisincreasedincomewould allowfrontline services to be protectedin thefuture.

(v)     Whererisk hadbeen realised inthe past, namelywhen theIcelandic bankingsystem sufferedcollapsewhilst councilmoneywas investedin it, officersandmanagershad managedthat riskso effectivelythat no frontline serviceswere affectedand furthermoreit waslikely that 100% of the investmentwould bereclaimed.

(5)     TheHead ofFinancialServices, NickVickers addressedthemeetinghe wished to expand on the issueofAbsoluteReturnFundsaddressedwithin thereport at 12.1. Thesefundswould, headvised, constitutea goodstartingpointforanynew investment madeas aresult ofan amended strategy.He assuredmembersthat althoughsome ofthesefunds operatedin a similarwayto Hedge Funds,thePension Funddid not investin HedgeFundsandnor wouldthe Council’sTreasuryFund. He reportedthat the AbsoluteReturnFundrun byPyrfordinvestedin safeand secure equity,fixed incomesand cash and moved moniesbetween these asset classesover time withthe objective ofdeliveringcash plus 5%.  He addedthat the comments made regardingthe potential volatilityof EquityIncome Fundswere validand that positionswithin themwould onlybe takenup withgreat caution.  Finallyhe commentedthat althoughproperty fundshadbeen a fantasticinvestmentfor the PensionFundtheTreasuryFund wasnot ableto investin the sameway.Only capital receiptscouldbe used to investin the largerfunds andthis mightlimit the investmentopportunitiesavailable.

(6)     In responseto a questionfromtheLeader,Mr Vickersreportedthat the return on investmentin the top 100ftsecompanieswas between4% and5%. TheLeader remarkedat the safety and securitythat couldbe providedby such companiesfor investorsand hopedthat thiscomparisonwould allayany fearsthat the councilwas increasing riskto an unacceptablelevel. Hebelieved that the amendments to the Strategywere not onlyacceptablebut necessary.

(7)     TheCorporateDirectorofFinanceand Procurement,AndyWoodspoke to the item. Hereported thatany investmentsmadeunderthe ‘otherinvestments’category would be subjectto a process,to beagreed, wherebythe TreasuryAdvisoryGroup would be privyto any plannedinvestmentbeforeit wasundertakento allowproper considerationofwhat waspotentially a broadinvestmentarea.

(8)     He further clarifiedthatany delegationsthat the Cabinetmight agreeto himand, or, MrSimmondswould be subjectto thoroughdue diligence,and the involvementof otherseniorofficerssuch as MrVickers.

(9)     It was RESOLVED: