Supplementary Agenda of Council Meeting

Council Meeting ITEM: 2.0A

18 June 2019

TITLE:	Tabled Item for 18 June 2019
ID:	A1203117
From:	Simon Crabb, Finance Manager

Executive summary

The purpose of this report is to place before the council a tabled item for inclusion in the council meeting agenda.

The tabled item was unable to be completed in time for circulation with the council agenda as the advice from council’s independent advisor, EriksensGlobal, was received after the council agenda was compiled. Furthermore, the EriksensGlobal advice proposes a strategy that requires full council approval prior to 30 June 2019.

The report includes the recommendation that the tabled item be received.

Recommendation

That as permitted under section 46A(7) of the Local Government Official Information and Meetings Act 1987 the following tabled report be received:

· Externally Managed Funds – Strategy to De-risk Portfolio Prior to Financial Year-end.

Authorised by Group Manager

Name:	Dave Tams
Title:	Group Manager, Corporate Excellence
Date:	17 June 2019

Council Meeting item: 6.3

18 June 2019

TITLE:	Externally Managed Funds - Strategy to De-risk Portfolio Prior to Financial Year-end
ID:	A1202809
From:	Simon Crabb, Finance Manager

Executive summary/Whakarāpopototanga

Council’s independent investment advisor, EriksensGlobal, has recommended a strategy to de-risk the Managed Fund Portfolio and provide a degree of protection against any equity market downturn leading into the financial year-end.

The detail of the EriksensGlobal strategy is attached as Attachment 1.

It is proposed that $2,600,000 is redeemed from the growth (equity) assets of each fund (CIF, IIF, PRF) prior to year-end and transferred into fixed term deposits for a term of 30 days.

Growth assets typically provide greater returns over the long term, however, they tend to carry a higher level of risk as they are strongly influenced by market volatility and can vary considerably over shorter time frames. Therefore, by reducing the investment in growth assets at this stage of the year we reduce the risk of a market downturn (in late June) eroding the gains that have already been generated over the past 11 months.

Term deposits are a low risk investment and at the time of writing the return for a 30-day term deposit was 2.05% pa. Prior to the maturity of the term deposit investments, the Investment Subcommittee and Jonathan Eriksen will assess the prevailing economic conditions and funding requirements before deciding to transfer any of the $2.6M back into Managed Funds.

As there is no Investment Subcommittee meeting scheduled before 30 June 2019, formal approval is sought from council.

It should be noted that the recommendations contained in this report are not related to the Operating Costs Reserve. The investment strategy for the Operating Costs Reserve will be presented to full council in August 2019.

Recommendation(s)

1. That the report ‘Externally Managed Funds - Strategy to De-risk Portfolio Prior to Financial Year-end’ by Simon Crabb, Finance Manager and dated 14 June 2019, be received.

2. That $2,600,000 is redeemed from the fund managers recommended by EriksensGlobal, prior to 30 June 2019, and transferred into 30-day fixed term deposits.

3. That the Investment Subcommittee and Jonathan Eriksen are consulted, and assess the prevailing economic conditions and funding requirements prior to deciding whether to transfer any of the $2,600,000 back into Managed Funds.

1. Options

No.

Option

Advantages

Disadvantages

Transfer $2.6M of funding from growth (equity) assets into 30-day fixed term deposits.

Reduce the risk of an equity market downturn (in late June) eroding:

· the Fund Manager gains that have already been generated over the past 11 months;

and

· the total gains reported in the 2019 Annual Report.

Earn a lower rate of return, associated with term deposits, for 30 days.

Do not transfer any funding from growth assets into 30-day fixed term deposits.

Take advantage of a higher rate of return should the equity market perform well in the month of June 2019.

Maintain an exposure to the risk of an equity market downturn (in late June) eroding the Fund Manager gains that have already been generated over the past 11 months, and the total gains that will be reported in the 2019 Annual Report.

The staff’s recommended option is 1.

2. Significance and engagement

In relation to section 79 of the Local Government Act 2002, this decision is considered to be of low significance because it is part of council’s day-to-day activities and is in accordance with the approved Treasury Management Policy.

3. Policy, risk management and legislative compliance

The activities detailed in this report are in accordance with council’s Treasury Management Policy and the 2018–28 Long Term Plan, both of which were approved in accordance with council’s decision-making requirements of sections 76–82 of the Local Government Act 2002.

4. Financial implications

A reduction in growth assets at this stage of the year helps maintain the level of Managed Fund gains already earnt this financial year and the level of annual gains that will be reported at 30 June in the 2019 Annual Report. Typically, growth assets will eventually absorb a short-term loss and generate relatively high returns in the long run. However, the strategy proposed in this report is intended to defend against the negative impacts of any downturn occurring before 30 June 2019.

Being a purely administrative matter, Community Views, Māori Impact Statement, and Implementation Issues are not applicable.

Attachments/Ngā tapirihanga

Attachment 1: EriksensGlobal Recommendation: Strategy to De-Risk Councils Managed Fund Portfolio ⇩

Authorised by Group Manager

Name:	Dave Tams
Title:	Group Manager, Corporate Excellence
Date:	17 June 2019