To receive a report from the Interim Treasury and Investment Manager.

Christine Marshall, Section 151 Officer presented Members with the Quarter 3 Treasury Management Update, pages 85 to 108 of the Agenda refer to provide the Committee with the 2022/23 Quarter 3 update on the Council’s Treasury Management Strategy Statement and Annual Investment Strategy for the period ending 31 December 2022.

Significant activity was highlighted to Members as follows:

·       Treasury investments achieved an average rate of 1.98% compared to the benchmark average 3-month Sterling Overnight Index Average (SONIA) rate of 2.284%.

·       Property fund investments were estimated to have achieved an average net rate of 3.393%.

·       The combined rate achieved on all investments was estimated to be approximately 2.44%.

·       The outturn for investment income for 2022/23 was forecast to be £2.6m which would be £1.3m above budget.  This would be monitored on a monthly basis to reflect changing market conditions.

Further to the report, Members received a presentation from the Section 151 Officer, a copy is attached at Appendix B to the Minutes.

Members were invited to put their comments and questions forward.

·       A Member highlighted her concerns with placing investments for a 12-month period due to the current uncertain financial climate and the risk involved and queried whether this aligned with the need to put security first.  The Section 151 Officer responded that cash investments were stepped and referred Members to the table on Appendix A, page 101 of the Agenda refers.  When the investment matured it was a judgement call on where to place investments, depending on the prevailing market rates at that moment in time.  In 2022, the financial market was very volatile, therefore the Council did short stepping to take advantage of 3, 6, 9 and 12-month steps.  The current forecast was more of a plateaued position, however there could be some longer-term volatility.

·       A query was raised on property fund returns and with the decline in the housing market queried what impact this would have on the Council’s commercial property portfolio.  The Section 151 Officer advised Members that property funds were mainly invested in business and retail and was not anticipating any housing market impacts.  Currently, business owners were doing a lot of refresh amongst their assets and looking at how they might bring them into a more viable use by making them into smaller units post Covid.  In addition, a lot of pension funds owned these assets and wouldn’t be in alongside the Council with these if they did not see them as a long-term income driver and investment opportunity.

·       With regards to the placement of treasury deposits, a Member raised concerns with the exposure to crypto currency that had negatively impacted on banks worldwide and hoped that the Council intended to watch this carefully. 

·       A Member highlighted that the Council still had an investment in the First Abu Dhabi Bank and queried whether it was the Council’s intention not to further invest in middle eastern countries.  The Section 151 Officer advised Members that this would be re-visited when the funds came to mature and the assessment process for those banks that the Council was placing funds with would be looked at, including what holdings they had in certain areas.

·       A Member referred to two investments that had matured in January and March 2023, page 101 of the Agenda refers and queried at what return they would have been reinvested.  The Section 151 Officer advised Members that she would provide a response after the meeting.

·       The loans to Invest East Lindsey (IEL) were highlighted at page 102 of the Agenda and a query was raised on when the 2-year £1.5m Housing Development Loan started and finished and also what period the ‘short-term’ cash flow loan for £1.25m referred to.  The Section 151 Officer advised Members that she would get the detail and circulate to Members after the meeting.

·       A Member queried how long it would take IEL to repay the loans to the Council.  With regards to the £1.5m housing development loan, the Section 151 Officer explained how the ‘build and sell’ model worked and was common with other authorities across the country and a high level of loan was normal for a housing development company.  Therefore, it was expected that all of the loans would be repaid when the houses were sold, whereby the developer profits would also be looked at as the arrangement ended.

·       A Member commented that IEL had various assets, for example KCP and queried who owned the assets.  The Section 151 Officer advised Members that the Council owned the land.

·       A Member queried whether it was cheaper to borrow money rather than to place it in investments and what the difference was between the two, for example the difference paid in interest on what was owed against the interest received on investments.  The Section 151 Officer explained that the Council could look at a premature redemption as interest rates went up, when the prevailing interest rate exceeded the rate that the loan was at.  This meant that the Council could get a premium or discount and put it back into the system that would reduce how much had to be paid back, however considered the PWLB debt to be very good value and as cash came back it also provided funding for future opportunities.

·       A Member queried whether the PWLB Loans carried an early repayment penalty.  The Section 151 Officer advised that they did not and the PWLB would give the Council a discount at the current rates if it was to redeem early at this point in time.

No further comments or questions were received.

Following which it was,

RESOLVED:

That the Q3 Treasury Management Update be noted.