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Transcript
Corporate Services Item: 8 Page: 1 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. Item: 8 Page: 2 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 Item: 8 Page: 3 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