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REPORT TO POLICY AND RESOURCES COMMITTEE – 11 NOVEMBER 2010
INVESTMENT POLICY 2010-11 – FURTHER DETAILS MONEY MARKET FUNDS
1.
Recommendations
The Committee is recommended to
1.
Approve the use of Money Market Funds as part of the portfolio of
Treasury Management Investment Instruments.
2.
Discussion
2.1
This report provides the Committee with information concerning Money
Market Funds (MMF) and seeks the Committee’s approval to use them as
outlined in the revised Investment Policy approved by this Committee on 16
September 2010.
2.2
Money market funds are mutual funds that invest in short-term money market
instruments. By definition, Money Market Funds are widely diversified, using
many forms of money market securities including types which this council
does not currently have the expertise or risk appetite to hold directly.
However, the high level of expertise of the fund managers and the regulation
of these funds mitigate these risks. The investment criteria for MMF as per
the Investment Policy are as follows:
‘any money market fund that meets the following criteria:(i)
It is a Sterling denominated fund domiciled within the EU as regulated
by the Institutional Money Market Funds Association (IMMFA)
(ii)
It falls into one of the groups of banks, financial institutions or
insurance companies and the institution concerned has a rating of Aaa
from Moody’s or a rating of AAAmmf from Fitch or a rating of AAAm
with Standard & Poor.
Investments will be made in Constant Net Asset Value (CNAV) Money Market
Funds which offer instant access to funds with same day settlement.’
2.3
MMF have preservation of capital and liquidity as their primary objectives and
offer the council a combination of high security, instant access to funds, high
diversification and good rates of return. The Institutional Money Market
Funds Association (IMMFA) is the trade association of the funds the Council
proposes to use. IMMFA funds are European money market funds which
obtain a triple-A rating and abide by the IMMFA Code of Practice. The funds
the Council will transact with are actively managed within rigid and
transparent guidelines.
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2.4
The credit ratings process for these funds methodically identifies, assesses
and weighs each fund in terms of its ability to deliver on its objectives.
Broadly, the ratings criteria comprise three main areas of analysis: credit
quality, portfolio construction and fund management. Regular post-rating
inspections are a key part of the process as well.
2.5
The Finance Division in consultation with its Treasury Advisors have
evaluated a number of MMF, based on credit rating, size, flexibility and return.
Accounts have been identified for dealing with 4 funds (see appendix A),
should this report be approved.
3.
Staffing and Financial Implications
3.1
The revenue budget for investment income in 2010/11 is £250,000. The
average rate of return on investments for 2010/11 is forecast to be 0.6%,
against a budget of 1%, this is due to market conditions and historically low
bank rate. The rate of return on investments in MMF is between 0.7% and
0.9%, therefore the use of MMFs will assist in increasing the rate of return
achieved.
Derek Yule
Head of Finance
Report prepared by: Julie Anderson, Principal Accountant (GAE & Resources)
24 September 2010
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Appendix A
Table 1: Money Market Funds Identified for Initial Use
Fund
Prime Rate Sterling Liquidity Fund
Ignis Sterling Liquidity Fund
Insight GBP Liquidity Fund
Hendersons Liquid Assets Fund
Size
£millions
1,481
6,750
9,170
3,236
Date of Inception
31/03/2008
04/02/2008
02/01/2003
06/01/2003
Year to Date Return
%
0.88
0.71
0.68
0.76