AGENDA


Finance and Governance Committee

 

Tuesday, 14 April 2020

7.00pm

 

Level 1, Georges River Civic Centre

Hurstville

 

 

 

 

 

 

 

 

 

 

 


Georges River Council – Finance and Governance Committee -  Tuesday, 14 April 2020                                            Page 2

 

          Finance and Governance Committee

ORDER OF BUSINESS

 

1.      Opening

2.      Acknowledgement of Country

3.      Apologies / Leave of Absence

4.      Notice of Webcasting

5.      Disclosures of Interest

6.      Public Forum

7.      Confirmation of Minutes of Previous Meeting  

MINUTES: Finance and Governance Committee - 09 March 2020

8.      Committee Reports

FIN013-20         Investment Report as at 29 February 2020

(Report by Senior Financial Accountant - Reporting).................................................. 3  

9.      Confidential (Closed Session)

FIN006A-20       Property Matter - Commercial Car Parks Review

(Report by Head of Strategic Property)

 

 


Georges River Council – Finance and Governance Committee -  Tuesday, 14 April 2020                                            Page 3

Committee Reports

Item:                   FIN013-20          Investment Report as at 29 February 2020 

Author:              Senior Financial Accountant - Reporting

Directorate:      Business and Corporate Services

Matter Type:     Committee Reports

 

 

 

Recommendation:

That Council receives and notes the contents of the Investment Report as at 29 February 2020.

 

Executive Summary

1.      This report details Council’s performance of its investment portfolio as at 29 February 2020, and compares it against key benchmarks.

2.      This report also includes the estimated market valuation of Council’s investment portfolio, loan liabilities and any required update on Council’s legal action against various parties.

3.      Council’s annualised rate of return is 2.21% which is 0.88% above benchmark. Income from interest on investments totals $1.9m which is $232k lower than the 2019/2020 year-to-date adopted budget.

Background

4.      Council’s Responsible Accounting Officer is required to report monthly on Council’s Investment Portfolio and certify that the Investments are held in accordance with Council’s Investment Policy, Section 625 of the Local Government Act (NSW) 1993 and Local Government (General) Regulation 2005.

 

Investment Performance Commentary

5.      Council’s performance against the benchmark for returns of its investment portfolio for February 2020, are as follows:

 

1 Month

3 Month

12 Month

Portfolio Performance

0.14%

0.47%

2.21%

Performance Index

0.08%

0.23%

1.33%

Excess

0.06%

0.24%

0.88%

Notes:                                                      

a)      Portfolio performance is the rate of return of the portfolio over the specified period.

b)      The Performance Index is the rate of return of the market (comparable securities) over the specified period.        

c)      Excess performance is the rate of return of the portfolio in excess of the Performance Index.


6.      Council’s investment portfolio as at the end of February was as follows:

Security Type

Market Value $000's

% Total Value

At Call Deposit

7,412

4.83%

Consolidated Cash Fund

12,491

8.13%

Covered Floating Bond

1,010

0.66%

Flexi Deposit (Fix/Float)

6,000

3.91%

Floating Rate Deposit

5,000

3.26%

Floating Rate Note

39,318

25.60%

Term Deposit

76,041

49.51%

Managed Funds Trust

6,301

4.10%

Total Cash and Investments

153,573

100.00%

 

7.      At the end of January 2020, Total Cash and Investments were $148m and have increased by $6m at the end of February 2020.

8.      Council continues to utilise the Federal Government’s current guarantee ($250k) investing in Term Deposits with a range of Authorised Deposit Taking Institutions (ADI’s) on short to medium term investments (generally 30 days to 180 days maturity).

Legal Matters

9.      Georges River Council is participating in a Group Class Action against Fitch Ratings Inc., in respect of losses suffered on the Corsair (Cayman Islands) No.4 Ltd Series 6 Kakadu Collateralised Debt Obligation (CDO) notes. Council suffered a capital loss of $214,812 on these investments dating back to December 2006, and will seek damages of the capital loss including lost interest as part of the action. There is no update on this matter, in terms of an outcome as at 29 February 2020.

Borrowings

10.    Council’s loan liability, as at 29 February was $1.375m, which represents the balance of a $5m/10 year loan drawn down on 16 November 2012 for the Jubilee Park upgrade in Mortdale. The next repayment of $125,000 is due on 23 March 2020.

11.    The outstanding balance on this facility is at a variable interest rate of 194 basis points above the three month BBSW. At the current three month BBSW rate, the interest rate payable is 2.83% pa.

12.    Council receives a 4% p.a. subsidy under the NSW Government’s Local Infrastructure Renewal Scheme funding agreement for the Jubilee Park upgrade facility. It is intended to continue this financially-advantageous arrangement through to full term in 2022.

 


 

Policy Limits

 

13.    The graph below shows the Investment Rating limits, as a percentage of total cash investments, which are allowed under Council’s Investment policy. It also compares them to the amounts actually invested, as a percentage of the total cash investments. It shows that the funds invested are within the limits set in the Investment Policy.

 

Investment Income

14.    Income from interest on investments to 29 February 2020 is $1.9m, which is $232k lower that the 2019/2020 year-to-date adopted budget.

15.    Investments have been made in accordance with the Local Government Act (1993), Minister’s Guidelines, Regulations and Council’s Investment Policy.

Analysis of Investments

Investment Duration

Investment Term

Market Value ‘000

% Total Value

Policy Limits

0 to < 1 Year

72,257

47.05%

100%

1 to < 3 Years

72,810

47.41%

70%

3 to < 5 Years

8,506

5.54%

50%

Portfolio Total

153,573

100.00%

 

 

16.    Council’s portfolio is liquid, with 47.05% of assets maturing within 12 months. FRNs, At-Call Funds and Fixed Bonds also provide additional liquidity in an emergency.

17.    The following graphs show analysis of the total cash investment by institution:    

 

 

 

 

 

Type of Investments

18.    The majority of Council’s investment portfolio is made up of fixed term deposits, which account for approximately 50% of total investments.

19.    Bank Floating Rate Notes (FRN) offer liquidity and a higher rate of income accrual, which is highly recommended by our Investment Advisors (CPG Research & Advisory).

20.    The following are the types of investments held by Council:

a)      Cash and Call Accounts refer to funds held at a financial institution and can be recalled by Council either same day or on an overnight basis.

b)      An FRN is a debt security issued by a company with a variable interest rate. This can either be issued as Certificates of Deposit (CD) or as Medium Term Notes (MTN). The interest rate can be either fixed or floating, where the adjustments to the interest rate are usually made quarterly and are tied to a certain money market index such as the Bank Bill Swap Rate.

c)      A Fixed Term Deposit is a debt security issued by a company with a fixed interest rate over the term of the deposit.

d)      A managed fund is a professionally managed investment portfolio that individual investors can buy into, purchasing 'units' rather than shares. Each managed fund has a specific investment objective. This is usually based around the different asset classes (cash, fixed interest, property and shares). The money you invest is used to buy assets in line with this investment objective. When you invest in a managed fund, you are allocated a number of 'units'. The value of your units is calculated on a daily basis and changes as the market value of the assets in the fund rises and falls.

* These managed funds have been grandfathered since the NSW State Government changed the list of Approved Investments as a result of the Cole enquiry (which was reflected in the Ministerial Order dated 31/7/2008).

Credit Rating

21.    Credit ratings are generally a statement as to an institution’s credit quality. Council’s Investment Advisors (CPG Research & Advisory) use Standard & Poor’s Credit ratings to classify the investments held by Council. Ratings ranging from AA to BBB (Short Term) & AA to BBB (long term) are considered investment grade.

22.    A general guide as to the meaning of each credit rating that Council deals with is as follows:

Short-term

AA:            The best quality companies, reliable and stable. An obligor’s capacity to meet its financial commitments on the obligation is very strong.

A:               The obligor’s capacity to meet its financial commitments on the obligation is still strong but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.

BBB:          Adequate capacity to meet financial commitments, but adverse economic conditions or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial commitments.

Unrated:    This category includes unrated Authorised Deposit-Taking Institutions (ADI’s) such as some Credit Unions and Building Societies to the extent not Commonwealth-guaranteed. No rating has been requested, or there is insufficient information on which to base a rating.    

Long-term

AA:            Quality companies, a bit higher risk than AAA. An obligor has very strong capacity to meet its financial commitments. It differs from the highest-rated obligors only to a small degree.

A:               Economic situation can affect finance. An obligor has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.

BBB:          Medium class companies, which are satisfactory at the moment. An obligor has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments.

Unrated:    This category includes unrated Authorised Deposit-Taking Institutions (ADI’s) such as some Credit Unions and Building Societies to the extent not Commonwealth-guaranteed. No rating has been requested, or there is insufficient information on which to base a rating.

23.    The credit quality of Council’s portfolio is relatively high with approximately 85% of assets rated ‘A’ or higher. The ‘AAA’ assets represent the deposit investments covered by the Federal Government’s Financial Claims Scheme (FCS).

24.    The remaining 15% rated ‘BBB’ or ‘unrated’ reflects the deposit and FRN investments with the regional and unrated ADIs.

 

Council’s Investment Powers

25.    Council’s investment powers are regulated by Section 625 of the NSW Local Government Act (1993), which states:

·        A council may invest money that is not, for the time being, required by the council for any other purpose.

·        Money may be invested only in a form of investment notified by order of the Minister published in the Gazette.

·        An order of the Minister notifying a form of investment for the purposes of this section must not be made without the approval of the Treasurer.

·        The acquisition, in accordance with section 358, of a controlling interest in a corporation or an entity within the meaning of that section is not an investment for the purposes of this section.

26.    Council’s investment policy and strategy requires that all investments are to be made in accordance with:

·        Local Government Act 1993 - Section 625

·        Local Government Act 1993 - Order (of the Minister) dated 12 January 2011

·        The Trustee Amendment (Discretionary Investments) Act 1997 – Sections 14A (2), 14C (1) & (2)

·        Local Government (Financial Management) Regulation 1993

·        Investment Guidelines issued by the Department of Local Government

 

Financial Implications

27.    Income from interest on investments totals $1.9m, which is $232k lower than the 2019/20 year-to-date adopted budget.

 

28.    The cash rate remained unchanged during February at a record low of 0.75%. The RBA stated that the global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target. They have judged that it is appropriate to ease monetary policy further to provide additional support to employment and economic activity.

 

Risk Implications

29.    Enterprise risk/s identified and management process applied.

30.    Council’s enterprise risk identified was ‘poor financial management adversely impacts Council’s long term financial sustainability’. The risk has been managed by Council’s management of investments in accordance with the relevant act and regulations, along with Council adopted Investment Policy. To further minimise the risk, Council will progressively move towards the placement of investments only in investments rated A or above.

Community Engagement

31.    No community consultation is required as a result of this report. Members of the community are able to attend and address Council at the Council meeting in relation to this matter in accordance with Council’s Code of Meeting Practice.

 

File Reference

D20/56915

 

 

ATTACHMENTS

Attachment 1

Investment Report as at 29 Feb 2020

 


Georges River Council -            Finance and Governance Committee - Tuesday, 14 April 2020

FIN013-20               Investment Report as at 29 February 2020

[Appendix 1]           Investment Report as at 29 Feb 2020

 

 

Page 13

 


 


 


 






Georges River Council – Finance and Governance Committee -  Tuesday, 14 April 2020                                            Page 18

Confidential items (Closed Meeting)

Council's Code of Meeting Practice allows members of the public present to indicate whether they wish to make representations to the meeting, before it is closed to the public, as to whether that part of the meeting dealing with any or all of the matters listed should or should not be considered in closed session.

 

Recommendation

That in accordance with the provisions of Part 1 of Chapter 4 of the Local Government Act 1993, the following matters be considered in closed Meeting at which the press and public are excluded.

 

FIN006A-20       Property Matter - Commercial Car Parks Review

(Report by Head of Strategic Property)

THAT in accordance with the provisions of Part 1 of Chapter 4 of the Local Government Act 1993, the matters dealt with in this report be considered in closed Council Meeting at which the press and public are excluded. In accordance with Section 10A(2) (c) it is considered the matter information that would, if disclosed, confer a commercial advantage on a person with whom the Council is conducting (or proposes to conduct) business.

THAT in accordance with Section 10D it is considered that if the matter were discussed in an open Council Meeting, it would on balance, be contrary to the public interest as it information that would, if disclosed, confer a commercial advantage on a person with whom the Council is conducting (or proposes to conduct) business.

 

That in accordance with the provisions of Section 11(2) of the Act, the reports and correspondence relating to these matters be withheld from the press and public.