Agenda - Byron Shire Council - NSW Government

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BYRON SHIRE COUNCIL ORDINARY MEETING 9 MAY 2013 (34) Note 2. Type Description CR Credit Principal varies based on valuation, interest payable via a floating interest rate that varies except for those capital protected investments that have transferred to their capital protection mechanism. E Equity Principal varies based on valuation, interest payable via a floating interest rate that varies except for those capital protected investments that have transferred to their capital protection mechanism. MFD Managed Fund Principal varies based on fund unit. Price valuation, interest payable varies depending upon fund performance. TD Term Deposit Principal does not vary during investment term. Interest payable is fixed at the rate invested for the investment term. CALL Call Account Principal varies due to cash flow demands from deposits/withdrawals, interest is payable on the daily balance at the cash rate +0.50% 5 10 Note 3. Note 4. Floating rate notes and Term Deposits can be traded on a day-to-day basis, and therefore Council is not obliged to hold the investments to the maturity dates. Managed funds operate in a similar manner to a normal bank account with amounts deposited or withdrawn on a daily basis. There is no maturity date for this type of investment. The coupon on these investments is zero due to the Capital Protection mechanism working. This occurs when the investment falls below a certain level. This coupon may be paid again in the future as the market recovers. Other Information – Financial Claims Scheme (FCS) 15 20 25 30 35 From 1 February 2012, the Financial Claims Scheme (FCS - or Government guarantee) coverage for any one investor in deposits reduced to $250,000 from $1,000,000 per Approved Deposit Institution (ADI). The Financial Claims Scheme was introduced as a result of the Global Financial Crisis (GFC), essentially to provide investors confidence when taking out deposit's with all ADIs and to ensure that their primary business of lending money was not significantly hindered due to lack of funding. NSW Local Government Councils have under the Ministers Order always been able to invest with ADIs without a dollar limit on any one institution. Under Australian Prudential Regulatory Authority (APRA) regulation Building Societies and Credit Unions must meet the same capital requirements as a Bank. Whilst the majority are much smaller in terms of balance sheet size to the Banks they are still considered to be strong business' and investing in their term deposits still low risk. Most of Councils’ term deposits have now been amended to show a partial guarantee of this $250,000 per deposit taking institution. Financial Implications The reduction of the current value of Council’s portfolio is a result of the downturn in global markets stemming from the global financial crisis. It should be noted that Council’s exposure to the credit/equity markets is supported by capital protection which ensures that the initial value of the investment is not reduced when held to maturity. In downward cycles, the capital is protected by allocating the investment to an underlying bond. If the investment is 100% allocated to this bond, Ordinary Meeting Agenda 09/05/13
BYRON SHIRE COUNCIL ORDINARY MEETING 9 MAY 2013 (35) no interest will be paid up to maturity. This will impact negatively on Council’s interest earnings on investments. 5 10 Council’s investment strategy is to invest for the long term while maintaining sufficient liquid investments to meet short term requirements. It is important that this strategy is maintained to ensure that principal attached to credit/equity investments is recovered over time as maturity occurs or ‘switch’ opportunities to alternative investments present themselves. In accordance with Resolution 13-137 the following information is provided to Council in all reports prepared for the 9 May, 13 and 27 June 2013 Ordinary Meetings: The estimated staff hours for the preparation of this report was approximately 1 hour. 15 20 25 30 Statutory and Policy Compliance Implications In accordance with clause 212 of the Local Government (General) Regulation 2005, the Responsible Accounting Officer of Council must provide Council with a monthly report detailing all monies Council has invested under section 625 of the Local Government Act 1993. The Report must be presented at the next Ordinary Meeting of Council after the end of the month being reported. In this regard, the current Council Meeting cycle does not always allow this to occur, especially when the second meeting of a month is a Strategic Planning Meeting or when the meeting dates are brought forward. Under normal circumstances it is not possible to present the investment report to the first Ordinary Meeting in the month, as investment valuations required for the preparation of the report, are often received after the deadline for the submission of reports for the meeting. Council’s investments are carried out in accordance with section 625(2) of the Local Government Act 1993 and Council’s Investment Policy. The Local Government Act 1993 allows Council to invest money as per the Ministers Order – Forms of Investment, last published in the Government Gazette on 11 February 2011. Council’s Investment Policy includes the objective of maximising earnings from authorised investments and ensuring the security of Council Funds. Ordinary Meeting Agenda 09/05/13
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Agenda - Byron Shire Council - NSW Government

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