Changes to Council’s investment policy recommended by its newly-formed Audit Risk and Improvement Committee (ARIC) have been adopted unanimously.
The Policy for Investment Management and Guidelines was adopted by the former Administrator, Mr Ian Reynolds, in April, and then referred to the ARIC for review.
ARIC recommended that Council reduce its maximum exposure to BBB category investments from 40 per cent to 20 per cent, it’s allowable maximum counterparty exposure from 100 per cent from 20 per cent for AAA securities, and from 30 per cent to 20 per cent for AA securities.
Counterparty risk refers to the total percentage of Council’s investments that are in the hands of any single financial institution.
A report from Acting Chief Financial Officer, Ms Viv Louie, recommended that Council adopt the ARIC recommendations.
The report noted: “Investment earnings are a material source of revenue for Council, and it is important that returns are maximised while risk is minimised.
“Council has sufficient cash available to meet its obligations and investments are managed in accordance with the relevant legislation.
“The reduction in exposure in BBB category investments, whilst reducing risk, will have an impact on investment earnings.
“Typically BBB rated investments pay a higher return to compensate for the lower credit rating.”
The monthly investment report for October showed that 39.04 per cent of Council’s investment portfolio was within the BBB credit rating category, as reported previously in Coast Community News.
“This is as a result of downgrades to the credit rating of Bendigo Bank and Bank of Queensland in May.
“Council staff will continue to monitor the portfolio and manage investments taking into consideration credit ratings of financial institutions, interest rates offered for the maturity dates required, and the amount of our investment portfolio already held with each financial institution.
“It is expected that this process will rebalance the portfolio as investments mature and counter the impact of these downgrades, and we will be below 20 per cent in the BBB category by March 2018.”
Source:
Agenda item 3.6, Nov 27
Central Coast Council ordinary meeting