Decision details

(Time: 4.07pm to 4.11pm)

(CouncillorRichard Farrell declared a personal interest in this item and in accordance with Standing Order 34, he remained in the meeting during its consideration.) 

At its meeting on 13 July 2007 the Executive received a report (32/07) on Treasury Management performance in 2006/07.  The bulk of the Council’s cash reserves were invested by an external fund manager, Investec Asset Management.  The Council’s Accountancy section also invested day-to-day cash holdings, such as council tax and business rates receipts, for cash flow purposes.  During 2006/07 Investec held in the region of £16 million and the in-house team an average of £11.8 million.  Investec had had a difficult year and achieved a return of only 4.15% while the in-house team had returned 4.89%.  The 7 day LIBID (Londoninterbank bid rate – the rate at which banks borrowed from each other), which was used as a benchmark, had averaged 4.97%. 

At its meeting in July the Executive had expressed disappointment with Investec’s performance and asked that a meeting should be held with Investec and Butlers, the Council’s independent investment advisers, to seek an explanation and assurances about future performance.  This meeting was held 1 November 2007 with Executive, Scrutiny Committee and other Members invited. 

Paul Cammies from Investec had explained their approach and how this had fallen short in 2006/07.  He felt that they had given too much weight to UK economic indicators and not enough to global ones.  As a result, when gilt-edged stock (gilts) prices had fallen in the final quarter, Investec had been too slow to sell their holdings and had incurred losses.  He acknowledged that Investec had under-performed and as a result offered to refund the Council the management fee that had been paid for the last quarter of 2006/07. 

Investec had since revised its strategy by altering the weight it gave to various factors and had also introduced an automatic process so that when gilts were purchased a level would be set so that if the price fell below a trigger point then selling would be considered.  This level would adjust in the event of price rises in order to “lock in” any gains.  Mr Cammies went on to outline how he saw the economy developing and the prospects for interest rates and gilt yields.  He was confident that Investec were well placed for better returns as rates peaked, with the current yield on the portfolio being 5.99%. 

Chris Anthony of Butlers then addressed the meeting.  He outlined the constraints which limited the opportunities for local authority investment with official guidance acknowledging that yield was important but must be subordinate to security and liquidity.  These same constraints applied to funds managed by outside agents.  He briefly covered the relative performance of the Council’s Fund Manager, both recently and since commencement.  He then went on to outline the advantages of using a Fund Manager in that they had access to a wider range of instruments and also better quality borrowers.  It was unfortunate that recent performance had been poor but Investec’s unusual offer to refund a quarter’s management fee was recognition of exceptional poor performance which should not be repeated.  This offer was welcomed by the Executive. 

Members noted that with closer monitoring, performance should improve.  However, it was noted that interest rates had started to fall.  As the Council was in a contractual situation for another year, it was recommended that it should see this through until contract completion.  Members agreed but asked the officers to keep performance under review. 

RESOLVED

that the Investec’s offer to refund the management fee for the 4^th quarter of 2006/07 be accepted and ongoing performance be closely monitored for the remainder of the Treasury Management contract.