Mr Neville Murton, Corporate Director for Resources presented the Treasury Management Report for 2018-19. Mr Murton said £100m from the 2018-19 budget was set aside for investment in pooled funds of which £76m had been invested. Further investment in pooled funds was paused due to high market volatility as the equity markets fell sharply over the 3 months to 31^st December 2018.

Mr Murton referred Members to table 6, page 297 of the agenda pack and said a capital loss of £2.5m occurred and the portfolio valuation was £73.5m instead of the invested amount of £76m. Mr Murton continued saying the investment portfolio credit worthiness had improved from A+ to AA-.

With regards to external rates of borrowing, table 2 page 294, Mr Murton said the average rate of borrowing had decreased for 3.25% to 1.16%. Mr Murton said the balance between risk and returns had been managed well over the period with the redemption of LOBO and re-borrowing from the Public Works Loan Board – table 3 and as such the overall picture was positive.

In response to questions from Members the following was noted:

·         The LOBO agreements were put in place 30 to 40 years ago and have become costly so where possible the Council has redeemed these in favour of borrowing from the PWLB. Mr Bartle added that the LOBO agreements are not easy to get out of as they incur penalties.

·         With regard to pooled funds these are equity based investments so carry a higher risk. Treasury management need to balance risk and reward. Therefore as capital is at risk this will reduce the credit score as shown in table 6. The credit score should not be confused with the credit rating which has improved from A+ to AA-, as this shows the credit worthiness of investments. Mr Bartle added Members may wish to consider the security of money invested, the liquidity and the yield.

·         In response to what was being done to negate the effects of inflation Mr Murton said generally low risk funds had been invested in. Pooled funds are a move away from this and carried more risk. However with the help of the Council’s advisors Arlingclose, the investments are closely monitored and it was envisaged that within a period of 5 to 10 years the capital value of the investments would increase. Decisions are made on the risk appetite of the organisation and are judgment based.

·         In response to what protection there is for the investments made, Mr Murton said there was no protection in terms of pooled funds, however the Pension Fund was more exposed to equities because with the Pension Fund there is an expectation that it must produce a return as the deficit needs to be made up.

The Committee RESOLVED to:

1.    Note the contents of the treasury management activities and performance against targets for the year ending 31^st March 2019.

2.    Note the Council’s investments as set out in Appendix 1. The balance outstanding as at 31^st March 2019 was £383,150m which includes £6m pension fund cash awaiting investment.