Invest Strategy 2024
Investment Strategy and Treasury Management Strategy
Adopted: 14/05/2024 Updated:
This Investment Strategy and Treasury Management strategy has been established in accordance with the requirements of the LGA 2003 and Welsh guidance regarding investments which states (although the guidance relates specifically to larger councils): ‘
…. town and community councils …. whose investments are not expected to exceed £250,000 shall have due regard to this guidance and give priority to security and liquidity rather than to yield for any investments they undertake. The level of detail and specific requirements outlined in the guidance will therefore not apply but all Town and Community Councils … should:
(i) agree a Capital Strategy before the start of the financial year as a minimum; this can be undertaken as a part of the budget setting process;
(ii) agree appropriate limits for each category of investments it plans to carry out;
(iii) agree a process that effectively monitors the strategy during the year, and;
(iv) ensure that all investments are in Sterling.
The Appendix contains the detailed guidance upon which this investment strategy is based.
Llansanffraid Glan Conwy Community Council acknowledges the importance of prudently investing the temporarily surplus funds held on behalf of the community.
Investment Objectives
The Council’s investment priorities are:
1) the security of its reserves;
2) the liquidity of its investments; and
3) return.
In that order. The Council will aim to achieve the optimum return on its investments commensurate with proper levels of security and liquidity.
Investments are primarily made to support effective treasury management activities e.g. cash flow management, banking and investing cash deposits.
Council will only make investments over one year if we are satisfied that enough funds remain available for expenditure when needed.
We will ensure that funds invested are available for expenditure when needed by carrying out an annual cash flow forecast, before the start of the financial year, to determine the maximum period that funds may prudently be committed. Our General Reserve (currently £10,000) will be invested in deposits requiring no more than thirty days notice. Other designated reserves, e.g for planned capital expenditure may potentially be invested for longer periods if we are satisfied that the funds will not be needed before the investment matures.
We aim to use simple financial instruments that do not require expert knowledge or external advisors. Our investment decisions will be based on publicly available information on yield and credit ratings. The annual investment strategy will be recommended by the RFO/Clerk and reviewed by the Finance Committee prior to being presented to Council for approval.
If Council should wish to consider more complex investment types, we will make training available as appropriate and/or get professional advice. We will not make investments unless we have enough understanding to make an informed decision.
This Strategy should be read in conjunction with section 8.5 of our Financial Regulations.
All investments will be made in sterling and, as a minimum, surplus funds will be aggregated in an interest-bearing bank account. Consideration will be given as to whether the providers’ investments comply with current Environmental, Social and Governance guidelines.
Council will not borrow money purely to invest or to lend and make a return.
Security of Investments
Government guidance differentiates between Financial and non-Financial investments.
A) Financial investments
1) Specified Investments Specified investments are those offering high security and high liquidity with a maturity of no more than one year. In addition, short-term investments must be in sterling and with bodies/institutions with “high credit ratings” (see ‘Risk Assessment below). For the prudent management of its treasury balances, maintaining sufficient levels of security and liquidity, the Council could use: - UK banks and UK building societies; - Public Bodies (including Local Authorities and Police Authorities); - UK FCA regulated qualifying money market funds with a triple A rating.
2) Non-specified investments Non-specified investments are usually for longer periods (i.e. more than one year) and with bodies that are not highly credit-rated. No non-specified investments are included in the current Investment Strategy as the current surplus funds are budgeted to be spent within the next twelve months.
3) Loans Council has decided that it will not make loans to any organisations, businesses or individuals for any reason.
B) Non-Financial investments
These are non-financial assets that the Council holds primarily or partially to generate a profit. There will normally be a physical asset that can be realised to recoup the capital invested. No such assets are held by the Council. Any proposal would require a full risk assessment as outlined in the detailed guidance.
Liquidity of Investments
The Responsible Finance Officer in consultation with the full Council will determine the maximum periods for which funds may prudently be committed so as not to compromise liquidity.
Long Term Investments
Long term investments shall be defined as greater than one year. The Council will use the same criteria for assessing long term investment as identified above for specified investments. The Council does not currently hold any long-term investments.
Risk Assessment
All of the Council’s reserves are likely to continue to be covered by the Financial Services Compensation Scheme up to the £85,000 deposit limits.
The Council will only invest in institutions of “high credit quality” and will monitor the risk of loss on investments by reference to credit ratings. The Council should aim for ratings equivalent to the Fitch F1 (AAA) rating for short-term investments or Fitch A - for long term investments.
Investments will be spread over different providers where appropriate to minimise risk. The investment position will be reviewed monthly by the Responsible Financial Officer and reported to both the Finance Committee and full Council.
The Council does not employ, in-house or externally, any financial advisors but will rely on information which is publicly available.
Investment Approval
Only the full Council has the authority to consider and make any investments, in accordance with the Annual Investment Strategy, including approval of the investment provider.
All recommendations relating to investments will be noted in the minutes of the Finance Committee meetings that are circulated to all councillors.
Review and Amendment of Regulations
The Investment Strategy will be reviewed annually. The Annual Strategy for the coming financial year will be prepared and reviewed by the Finance Committee as part of the Budget process which will then make a recommendation to the Full Council.
The Council reserves the right to make variations to the Strategy at any time, subject to the approval of the Full Council. Any variations will be made available to the public.
APPENDIX - outline of detailed Investment Strategy Guidance
Investments made by local authorities can be classified into one of two main categories:
A) Investments held for treasury management purposes; and
B) Other investments.
A) Treasury management investments:
The strategy contribution that these investments make to the objectives of the Council is to support effective treasury management activities.
It is a requirement to prioritise Security, Liquidity and Yield in that order of importance.
B) Other investments: Council must declare the contribution that all other investments make towards the service delivery objectives of the Council, i.e. why they have been made.
A prudent investment policy will have two underlying objectives:
- Security – protecting the capital sum invested from loss; and
- Liquidity – ensuring the funds invested are available for expenditure when needed.
The generation of yield is distinct from these prudential objectives. Once proper levels of security and liquidity are determined, it will then be reasonable to consider what yield can be obtained consistent with these priorities.
For treasury management investments, Council should consider security, liquidity and yield in that order of importance. For other types of investments Council should consider the balance between security, liquidity and yield based on their risk appetite and the contribution of that investment activity.
Security
A) Financial Investments Financial investments can fall into one of three categories:
1) Specified investments;
- The investment is denominated in sterling and any payments or repayments in the respect of the investment are payable only in sterling;
- The investment is not a long term investment. This means that Council has the contractual right to repayment within 12 months;
- The making of the investment is not defined as capital expenditure;
- The investment is made with a body or in an investment scheme described
- as high quality (as defined in the guidance);
2) Loans Council has decided that it will not make loans to any organisations, businesses or individuals for any reason.
3) Other Non-specified investments. A non-specified investment is any financial investment that is not a loan and does not meet the criteria to be treated as a specified investment. For non-specified investments the Strategy should:
- Set out procedures for determining which categories of investments may be prudently used
- Identify which categories of investments have been defined as suitable for use.
- State the upper limits for the maximum amounts both individually and cumulatively that may be held in each identified category and for the overall amount held in non-specified investments and confirm that investments made have remained within those limits.
B) Non-financial investments
These are non-financial assets that the Council holds primarily or partially to generate a profit. There will normally be a physical asset that can be realised to recoup the capital invested. Council should consider whether the asset retains sufficient value to provide security of investment using the fair value model in International Accounting Standard 40: Investment Property as adapted by proper practices.
Where the fair value of non-financial investments is sufficient to provide security against loss, the Strategy should include a statement that a fair value assessment has been made within the past twelve months, and that the underlying assets provide security for capital investment.
Where the fair value of non-financial investments is no longer sufficient to provide security against loss, the Strategy should provide detail of the mitigating actions that Council is taking or proposes to take to protect the capital invested.
Where Council recognises a loss in the fair value of a non-financial investment as part of the year end accounts preparation and audit process, an updated Strategy should be presented to full council detailing the impact of the loss on the security of investments and any revenue consequences arising therefrom.
The Strategy should state the Council’s approach to assessing risk of loss before entering into and whilst holding an investment, making clear in particular:
- How it has assessed the market that it is/will be competing in, the nature and level of competition, how it thinks that the market/customer needs will evolve over time, barriers to entry and exit and any ongoing investment requirements;
- Whether and, if so how, external advisors are used;
- How the Council monitors and maintains the quality of advice provided by external advisors;
- To what extent, if at all, any risk assessment is based on credit ratings issued by credit ratings agencies;
- Where credit ratings are used, how frequently they are monitored and the procedures for taking action if credit ratings change.
- What other sources of information are used to assess and monitor risk.
Liquidity
For financial investments that are not treasury management investments or loans the Strategy should set out the procedures for determining the maximum periods for which funds may prudently be committed and state what those maximum periods are and how the Council will stay within its stated investment limits.
For non-financial investments the Strategy should set out the procedures for ensuring that the funds can be accessed when they are needed, for example to repay capital borrowed. It should also state the local authority’s view of the liquidity of the investments that it holds, recognising that assets can take a considerable period to sell in certain market conditions. Where Council holds non-financial investment portfolios they can choose to assess liquidity by class of asset or at a portfolio level if appropriate.
Proportionality
Where Council is or plans to become dependent on profit generating investment activity to achieve a balanced revenue budget, the Strategy should detail the extent to which funding expenditure to meet it’s service delivery objectives is dependent on achieving the expected net profit. In addition, the Strategy should detail the local authority’s contingency plans should it fail to achieve the expected net profit.
The assessment of dependence on profit generating investments and borrowing capacity allocated to funding these should be disclosed as a minimum over the life-cycle of a Medium Term Financial Plan. However, an assessment of longer term risks and opportunities is recommended.
Borrowing in advance of need
Council must not borrow more than or in advance of their needs purely in order to profit from the investment of the extra sums borrowed. Where Council chooses to disregard the Prudential Code and official guidance and borrows or has borrowed purely to profit from the investment of the extra sums borrowed the Strategy should explain:
- Why the Council has decided not to have regard to the Guidance or to the Prudential Code in this instance; and
- The Council’s policies in investing the money borrowed, including management of the risks, for example, of not achieving the desired profit or borrowing costs increasing.
Capacity, skills and culture
The Strategy should disclose the steps taken to ensure that those elected members and statutory officers involved in the investments decision making process have appropriate capacity, skills and information to enable them to take informed decisions as to whether to enter into a specific investment, to assess individual assessments in the context of the strategic objectives and risk profile of the local authority and to enable them to understand how the quantum of these decisions have changed the overall risk exposure of the local authority.
The Strategy should disclose the steps taken to ensure that those negotiating commercial deals are aware of the core principles of the prudential framework and of the regulatory regime within which local authorities operate.
Where appropriate the Strategy should comment on the corporate governance arrangements that have been put in place to ensure accountability, responsibility and authority for decision making on investment activities within the context of the Council’s Financial Regulations.