Treasury Management 2018-19 - Mid-Year Review
Members were provided with a mid-year review update report to Members of the Finance and Audit Committee on treasury management activity undertaken during the period April to September 2018.
Section 3 (page 38) includes an economic background update from Link along with an interest rate forecast. Following the Quarterly inflation report and minutes from the MPC meeting, Link is anticipating an interest rate rise in 3nd quarter of 2019, and further rate rises in 2020 and 2021. Those forecasts will form the basis of the investment income forecast when setting the 2019/20 budget.
As at 30th September, the Council’s investment balance was £55.3m. That is a significant increase which reflects the investable balances that the Council is holding as a result of the St George’s Centre development. The redevelopment of the St George’s centre has led to an increase in the Council’s capital programme which has resulted in revised estimates for the capital expenditure and financing of the capital programme prudential indicators which can be found in section 6 of the report at pages 41 and 42 of the pack.
Full details of the Council’s investments as at 30 September can be found in appendix 2 and 3 of the report.
Of the £55.3m, £34.9m is currently managed internally and £20.4m is managed externally within Property and Multi Asset Funds.
The Principal Accountant (HRA & Exchequer) highlighted an error in the report; in paragraph 7.2 the yield on the internally managed investments is shown as 0.453% against a 3 month LIBID benchmark of 0.21%. Those are the figures for 2017-18. The correct figures should be the average investment return is 0.43% against a 3 month LIBID figure of 0.67%.
In turn that means that GBC were below the benchmark and this is primarily due to the volume of cash GBC hold and having to hold relatively large balances in the Money Market Funds. Whilst the TMSS was amended to increase the total sums that can be invested with each counterparty following the St George’s redevelopment, as a result of the EU MIFID2 legislation that came about in January the funds haven’t been able to be placed immediately. The next step is to go through an on-boarding process with new counterparties which has been time consuming and therefore as a result GBC have had to hold monies in the Money Market Funds until such time as investments can be placed. However GBC have now been able to place longer term investments, and are now starting to achieve over 1%, therefore the yield should start to rise.
Moving onto the Property Funds and Multi Asset funds the team have continued to see capital growth across all three property funds as can be seen in the table on page 45 of the pack. The capital value of Multi Asset Funds continues to be very volatile and is currently below the opening value. It is important to remember those are long term investments and the value can go up as well as down. The funds will be monitored closely and contact will be ongoing with the Fund Managers. The intention is to invite one of the Multi Asset Funds along to Finance and Audit Committee in February ahead of the TMSS for 2019-20 being presented.
The cashflow model has been updated to reflect the Q2 MTFP and HRA Business plan as well as the cashflow relating to the St Georges development and the latest version can be found in appendix 4 and 5. The changes are having a positive impact on the cash balances.
At section 12 (page 46) IFRS9 is referred to which is a change in accounting standards that came into effect on 1 April 2018. The overarching aim of the accounting standard is to recognise changes in values of investments in the comprehensive I&E as they occur rather than just when they are realised on sale. For GBC, this means that if the value of our property funds and multi asset funds have a net increase in value, the gain will be taken through to the I&E and ultimately taken through to reserves but if a net loss is seen, this is also taken through to the I&E and essentially need funding, even though it hadn’t been realised as a result of sale. The Government consulted on the standard and have agreed a temporary override will be applied for 5 years instead of the original 3 years that was proposed, during which time the Council will be able to build a reserve to fund any potential losses or disinvest from the funds. The Government also advised that it will be kept under review.
Referencing page 46 section 12, the Committee agreed that too much technical jargon is used and the paragraph should be written in more plain English so that it could be universally understood. The Chair added that acronyms should be avoided where possible.
Following a question regarding property fund investment returns, the Principal Accountant (HRA & Exchequer) explained that GBC realise income returns and an element of capital growth by holding such investments. The table in the report shows capital growth in addition to the returns from the income stream.
Resolved that Members:
- noted the report
- recommended to Full Council that the revised estimates against the prudential and treasury indicators are endorsed
- Mid year review report 2018-19 Final Version, item 83. PDF 326 KB
- Appendix 2 - Deposits Dashboard Investments, item 83. PDF 140 KB
- Appendix 3 - Investments as at 30-09-18, item 83. PDF 20 KB
- Appendix 4 - Cashflow Forecasts at at 30 September 2018, item 83. PDF 341 KB
- Appendix 5 Cashflow Forecast as at 30 September compared to January 2018, item 83. PDF 334 KB