To receive a report from the Treasury and Investment Manager (PSPS).

Sean Howsam, Treasury and Investment Manager (PSPS) presented Members with the 2023/24 Quarter 3 update on the Council’s Treasury Management Strategy Statement and Annual Investment Strategy for the period ending 31 December 2023, pages 43 to 72 of the Agenda refer.

The following areas were highlighted to Members:

•     An economic update for the first three quarters of the 2023/24 financial year

•     The outlook for the remainder of the financial year along with interest rate forecasts

•     A review of the Treasury Management Strategy Statement and Annual Investment Strategy

•      A review of the Council’s investment portfolio and borrowing strategy for 2023/24

•      Debt rescheduling and compliance with Treasury and Prudential indicators

Members were invited to put their comments and questions forward.

·         A Member acknowledged the comprehensive report provided by the Treasury and Investment Manager and commented that greater understanding had been aided by the Treasury Management Training undertaken by Committee Members on the 25^th March 2024.

·         In reference to the Invest East Lindsey loans that were due to mature by the end of the month, a Member requested clarification on the potential impacts, page 62 of the Agenda refers.   In response, the Treasury and Investment Manager (PSPS) advised Members that the loans maturing at the end of the current financial year were expected to be repaid and should this not occur, a revised loan repayment date would be negotiated. 

·         In reference to the £20m debt rescheduling where the Council had borrowed £10m in order to repay the PWLB loan early, a Member queried whether a cashflow issue had occurred, page 66 of the Agenda refers.  In response, the Treasury and Investment Manager (PSPS) explained that there had been a temporary issue with short term cashflow as the Council did not want to miss the opportunity to take advantage of favourable rates which were subject to change on a twice daily basis and swift action had been necessary to benefit from early repayment. 

·         In relation to the Council’s external debt limit of £38m, a Member queried the basis of the figure, page 69 of the Agenda refers.  In response, the Treasury and Investment Manager (PSPS) informed Members that the Council had an operational boundary of £38m for 2023/24 and that the projection in the Treasury Strategy for 2024/25 had been reduced as the Council was not expected to require that level of borrowing due to repayment of the PWLB loan. It was further advised that any future borrowing requirements could be reviewed and that the authorised limit for external debt could not be exceeded without Council approval. 

·         A Member commented that the assumption for interest rates to decrease by the end of the year was optimistic and queried whether the Council should be exercising caution, page 53 of the Agenda refers.  In response, the Treasury and Investment Manager (PSPS) assured Members that regular updates and forecasts on interest rates and inflation were received from the Council’s external treasury advisors and that prudent measures were taken to monitor investments and ensure that loans were not maturing at the same time.

·         Referring to the £803,185 loss in Property Funds and £236,945 loss in Federated Hermes Property Unit Trust since 31^st March 2023, the Chairman queried under what circumstances were the funds reassessed and devalued, page 64 of the Agenda refers.  In response, the Treasury and Investment Manager (PSPS) explained to Members that property fund valuations tended to decrease in a high interest rate environment due to the reduction in property buyers who could not afford to purchase homes.  It was further advised that external fund managers had forecast that interest rates would fall towards 2025-26 and when the property funds would start increasing in value.  The Treasury and Investment Manager (PSPS) reminded Members that the effects of COVID had been a key trigger for when these funds had started to decrease and that current trends had indicated that the reductions were getting smaller each month which indicated that a rise was expected.

·         A Member queried the implications on Liquidity in reference to the £10m borrowed by the Council for early repayment of the PWLB loan.  In response, the Treasury and Investment Manager (PSPS) advised Members that the Council did not have any issues in relation to liquidity and that the debt redemption exercise had resulted in £11m being required on short notice which was a one-off decision.  It was further advised that for liquidity purposes the Council would not normally hold that level of funds as it was more beneficial for funds to be invested for longer periods of time.

·         A Member praised the Treasury Management Training provided for Audit and Governance Members earlier in the week and supported the recommendation that all Members of the Council would greatly benefit from undertaking Treasury Management Training at least once a year.

·         A Member requested a progress update on the loans to Invest East Lindsey, noting that two loans amounting £1m were ringfenced for housing development.  In response, the Section 151 Officer advised Members that the likelihood of repayment of the loans was a matter for Invest East Lindsey to comment on and for them to approach the Council as to whether it wished to extend the loan.  It was further advised that with build and sell arrangements, capital repayments in this instance were dependent on when the properties were sold. 

Andy Fisher, Assistant Director – Fund Assets further advised Members that Invest East Lindsey’s board of Directors was in the process of signing off the 2024/25 Budget which had been delayed due to a significant cash transaction related to the sale of homes that was expected to materialise within the next day.  The Assistant Director – Fund Assets stated that cash flow and cash in the bank was critical, and that Invest East Lindsey had 11 homes which remained unsold and would be seeking to defer the loans for a period of time in order to collect the cash from the properties.  It was further confirmed that interest would continue to accrue and be payable to the Council in accordance with the base loan agreement. 

·         A Member requested clarification whether a grant was being obtained from the Government to buy the Invest East Lindsey homes for Afghan refugees.  In response, the Assistant Director – Fund Assets advised Members that the Council had secured external funding which they were seeking to utilise for the properties.

Further to an earlier discussion it was agreed that the recommendation for Treasury Management Training to be undertaken by all Council Members be added to the Audit & Governance Committee’s Self-Assessment Action Plan.

·         In relation to investments in counterparties, a Member queried how the fees were addressed.  In response, the Treasury and Investment Manager (PSPS) advised that property fund managers deducted their fees from the distributions and that the reported fees were net.  It was further advised that the overall gross position in relation to investment returns was taken into account when the end of year financial statements was prepared and that the management fees were recorded in the general ledger and reflected in the statement of accounts. 

·         A Member commented that they would like to view the Management Fees.  In response, the Treasury and Investment Manager (PSPS) advised that the management fees were detailed within Note 17 -Financial Instruments.  The Section 151 further advised that the Management Deductions were shown at page 66 of the Agenda.

No further comments or questions were received.

Following which it was,

RESOLVED:

That the Q3 Treasury Management Update be noted.