Issue - meetings

At its meeting on 13 July the Executive received a report (32/07) on Treasury Management performance in 2006/07.  The bulk of the Council’s cash reserves are invested by an external fund manager, Investec Asset Management.  The Council’s Accountancy section also invests 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 borrow from each other), which is used as a benchmark, averaged 4.97%.

The Executive were disappointed with Investec’s performance and asked that a meeting be held with Investec and Butlers, the Council’s independent investment advisers, to seek an explanation and assurances about future performance.

A meeting was held at 2pm on Thursday 1 November 2007 in the Abbey Room, Guildhall, Abingdon with Members.  Paul Cammies from Investec explained their approach and how this had fallen short in 2006/07.  He felt that they had given too much weighting 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 now 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.  He 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%.

Mr Cammies had answered questions throughout his presentation.  He took some final questions and then left the meeting.

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  ...  view the full agenda text for item 100

(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  ...  view the full minutes text for item 100

To receive and consider report 32/07 of the Strategic Director and Monitoring Officer. 

Introduction and Report Summary

The Council’s Treasury Management Policy requires a report to be made on Treasury Management performance in the previous financial year.  It is also required by the CIPFA Treasury Management Code of Practice as embodying sound financial management.

The purpose of this report is to detail the Council’s cash investment performance in the financial year 2006/07 and to raise any treasury management issues.

The Contact Officer for this report is Steve Lawrence, Head of Asset Management, telephone 01235 540321, e-mail address: steve.lawrence@whitehorsedc.gov.uk

Recommendations

(a)              to note the return on cash invested during 2006/07 and the balances of the funds at 31 March 2007; and

(b)              to note the prospects for the return on cash investments in 2007/08. 

(Time: 3.08pm to 3.15pm)

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

The Executive received and considered report 32/07 of the Strategic Director and Chief Finance Officer, which reported on Treasury Management performance for 2006/07.  The report detailed the Council’s cash investment performance. 

In-house investment showed a return of 4.9% for the year, while the external fund managers, Investec, showed a 4.15% return (3.97% after fees).  However, it was noted that Investec was better placed for a satisfactory performance in 2007/08 following recent rises in interest rates. 

Members expressed disappointment in Investec’s performance but were not minded to change external fund managers at this stage.  However, it was suggested that a meeting was held between Butlers (the Council's investment advisors), Investec and Members of the Council to seek an explanation of the poor performance.  It was suggested that the invitation should extend to all Members of the Council, but would be of particular interest to Executive and Scrutiny Committee Members. 

Members also requested that 'league table' performance statistics were provided so that Investec's 2006/07 performance could be compared against other investment companies and for Investec’s five-year performance too.  Members also asked for equivalent comparative data from another Council to give broader perspective. 

The actual investment income achieved in 2006/07 had fallen short of the revised budget forecast by £63,822.  This represented 4.9% of the budget and was largely due to an over-optimistic view of the returns that would be made, both in-house and by the fund manager, in the final quarter of the year.  However, rising interest rates meant that the return in 2007/08 should be better than previously expected. 

RESOLVED

(a)              that the return on cash invested during 2006/07 and the balances of the funds at 31 March 2007 be noted;

(b)              that the prospects for the return on cash investments in 2007/08 be noted;

(c)               that a meeting be held between Butlers, Investec and Members of the Council to seek an explanation of Investec’s poor investment performance; and

(d)       that 'league table' performance statistics be provided so that Investec's 2006/07 performance can be compared against other investment companies and that Investec’s five-year performance be provided also, as well as equivalent comparative data from another Council.