The Principal Accountant tabled an up-to-date investment portfolio and current lending list. In view of the current turmoil in the Euro zone, the Council had been advised by Sector Treasury Services not to invest for periods longer than 3 months. The exceptions to this were the UK Government and related entities, semi-nationalised institutions and money market funds. Sector had stated no changes were needed to existing investments, but as they matured it was recommended they moved to a maximum of 3 months duration.

The Principal Accountant drew Members’ attention to the investments with Clydesdale Bank. The bank was now rated as only A+ in the longer term and hence ceased to meet the Council’s minimum credit rating requirement. The Council has £4 million invested with them in total. It would be difficult to find a suitable place for these investments when they matured as limits with most institutions satisfying the minimum credit rating requirement had been reached, whilst other institutions were only interested in single deposits of  £5 million and over.

He presented 4 options to the Group and sought Members’ views.

The first option was for highly secure government investments, such as Treasury bills, lending to local authorities or the Debt Management Office’s Account Deposit Facility. Rates of return for the Debt Management Office were currently 0.25% for any maturity date up to one year, whilst those for Treasury bills varied between 0.42% for one month, up to 0.50% for six months,

Rates for lending to local authorities could be higher as the current lending to Newcastle Upon Tyne City Council returned 1.25%, but such opportunities were difficult to find.

The second was to increase the lending limit to any institution from £6 million. This would require an amendment to the Council’s Investment Strategy.

A third option was to reduce the minimum credit rating requirement for institutions in which the Council would invest, which was currently AA-. This would also require a change to the Investment Strategy. Members did not support this proposal.

Finally he proposed the opening of one or more money market funds, which consisted of high quality, Sterling denominated, short term debt and debt related instruments. All such funds were rated AAA and provided returns between 0.59 and 0.81%. This included the fund manager’s fees for sums of £5 million and above. They operated similarly to unit trusts and there was instant access to the cash deposited in them. A factsheet about the Ignis Sterling Liquidity Fund was circulated.

In response to a question he confirmed he had not investigated index-linked gilts but was not sure whether they could be readily accessed.

Members suggested that a Debt Management Office Account could be useful in the short-term while Officers continued to investigate the option of investment in money market funds.

The Principal Accountant updated the Group with the latest information on recovery of the Icelandic investment. The test cases had been successful in the Icelandic Supreme Court and he expected this to apply to the Council’s case. Between 95-98% was expected back on the investment and the interest up to the receivership filing date. However, this was dependent on the realisation of the bank’s assets which could take until 2018. The Local Government Association was continuing to observe the situation to protect the Council’s position.

Resolved:      That the report be noted.