Agenda item

2.10pm

Report by Lorna Baxter, Chief Finance Officer (AG5).

The Committee is RECOMMENDED to note the report, and to RECOMMEND Cabinet to note the Council’s Mid-Term Treasury Management Review 2013/14.

The Committee had before them the report of the Chief Finance Officer report for the period 1 April-30 September 2013 (AG5).  Gregory Ley, Financial Manager Treasury Management, in introducing the report indicated that a 0.87% return had been achieved, equating to interest of £1.610m.  This was mainly due to grants being front-loaded to the start of the year and liquidity being prioritised.  A total debt of £412m existed, with borrowing of £406m by the end of September 2013.  There had been no profit or loss in gross performance, although there had been the cost of employing Investec Asset Management Ltd as fund managers on the Council’s behalf.

Investec have provided a return of 0.0%, which was an underperformance influenced by market conditions in the US.  The Committee were reminded that Investec was a 3-year investment strategy, over which the return had been 0.88%.

During discussion members queried if there were any constraints on changing the Council’s fund managers.  It was noted that Investec’s performance had been queried for several years, and that they had failed their own benchmark.  Lorna Baxter, Chief Finance Officer, confirmed that the Investec benchmark was based on a 3-year position, similar to the periods for Pension Fund investments.  Ideally the investment should be left to the end of the 3 year period to determine whether it had achieved its mandate, but that the matter was being reviewed by the Treasury Management Team.  She further reported that the remit of Investec was not about great returns, but rather about spreading investments and lowering risks on the Council’s behalf.

In response to questions from members, Ian Dyson confirmed that Investec’s performance was not a matter for the Audit & Governance Committee, but one for the Management Strategy Team to deal with as it related more to managing performance, than being a control issue.

Councillor Mathew felt that any new contract should basically be awarded on a flat-fee basis, as well as being dependant on the performance of the fund management company.  This was an achievable aim he felt, and the correct the basis on which the Council should negotiate the terms of a new contract in this area.

Questions were asked as to the sums on deposit over the past 6 months and the interest received.  It was confirmed that £350m was on deposit, which was more than in the past due to the grants being paid to the Council at the start of the financial year.  The Committee also heard that Investec had previously provided a better return in that it had been more than 0%.  Councillor Mathew asked for a written answer as to what the £6m long-term liabilities were with Investec and what the contingent liabilities were.

The Committee discussed the situation surrounding investing in Councils in Scotland generally, the impact should Scotland vote for independence and the position of Fife Council, in relation to their pension plan.  Lorna Baxter commented that short term, there were no concerns with this, but a decision would have to be made before a referendum took place, giving a timescale of less than 3 years.

The Chair noted that Lorna Baxter had now been appointed the Section 151 Officer for the Council, and congratulated her on her appointment on behalf of the Committee.

Following debate it was felt that the Committee remained concerned after Investec’s performance and it was:-

RESOLVED:

The Committee noted with concern Investec’s performance and that Investec’s annualised return for the first six months of the year was 0.00% compared with a benchmark of 1.59%, and RECOMMENDED:

(a)    the Performance Scrutiny Committee to consider the matter further;

(b)    Cabinet to note concerns in relation Investec’s performance as noted in paragraph 29 in the Council’s Mid-Term Treasury Management Review 2013/14.