Ordinary Meeting of Council 18 March 2009

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1.1 INVESTMENT POLICY

(All Wards) (Financial Services)

KEY ISSUES

• An Investment Policy and Investment Strategy have been developed.

• The Governance Committee as well as the Audit Committee has considered the investment risk within the Policy and Strategy.

It is recommended that the Council adopt the Investment Policy and Strategy

BACKGROUND

In March 2008 a report on the City’s investments was presented to Council, providing an update on the Investment portfolio as well as the impact on the investment policy as a result of the global financial crisis. Council resolved to increase the percentage of investments in vanilla (conservative, simple instruments) investments, such as bank bill and term deposits and authority to hold existing investments that no longer meet the City Investments policy rating guidelines (due to downgrades from rating agencies). In addition, an update was requested in six months. That report was also submitted to the Audit Committee on 6 May 2008.

Staff have reviewed the City Investment policy, as well as developed an Investment Strategy. These documents have been developed by referencing the Department of Local Government's Guideline No. 19 – Investment policy as well as seeking external independent expert advice. The Investment policy and Strategy have been approved by Executive Management, Audit Committee and Governance Committee, prior to submission to Council.

REPORT

The Investment policy is set at the high level, providing the overarching principles. The Investment Strategy includes greater detail and is the working document staff will use to guide the investment of surplus funds. The Investment Strategy will also be used for monthly investment reporting purposes, to assist in the analysis and monitoring of investment results against the established investment benchmarks.

A function of the Governance Committee is to oversee all City policies prior to presentation to Council and as such, this policy was presented for adoption. The Strategy has also been presented to the Audit Committee, in order to consider the risk management framework in which the City operates and to recommend to Council any adjustments to the risk profile.

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Some of the issues the Governance and Audit Committees have considered are the type of investment instruments, the rating of instruments, the length of investments as well as the maximum percentage of the type of investment. In addition, the Strategy establishes benchmarks by which the return of the Investment portfolio will be measured. Establishing the benchmark for each product somewhere between a risk averse position and a risk taker position will ultimately impact on the Investment Portfolio's risk profile and return. Establishing a high benchmark will require a greater level of risk in order for the portfolio to meet the benchmark. Conversely, establishing a low benchmark is likely to lead to a lower level of risk and thus lower level of return.

Staff wish to draw attention to the difference in the Policy and the Strategy, in particular the Approved Investments. The Policy clearly outlines what Investments are approved and prohibited. The Strategy differs slightly from the Policy in that whilst a particular investment may be approved in the Policy, it may not be approved in the Strategy. The rationale for a difference between the Policy and the Strategy is that the Strategy has a shorter term horizon, focusing on the prevailing investment market, whereas the policy focuses on a longer term horizon.

By way of example, the Policy allows for the City to purchase Floating Rate Notes (FRN) but the Strategy does not. In the past FRN investments have produced good returns; however in the current financial crisis the FRN is not providing attractive returns. Should the market change and FRNs become attractive; the Strategy can be altered to achieve better returns within the investment policy.

ATTACHMENTS

• City of Swan Policy for the Investment of Surplus Funds

• City of Swan Investment Strategy

• Department of Local government and Regional Development-Guideline 19 dated February 2008

STRATEGIC IMPLICATIONS

Prudent Investment of the City’s significant investment portfolio facilitates Organisational Capability.

STATUTORY ENVIRONMENT

Local Government Act 1995

Trustees Act 1962 (Prudent Person)

Australian Accounting Standards

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FINANCIAL IMPLICATIONS

The Investment Policy and Strategy will impact on the financial returns (interest) of the City and possibly the security of liquid assets (principle).

RECOMMENDATION

That the Council resolve to:

1) Adopt the City of Swan Policy for the Investment of Surplus Funds.

2) Adopt the City of Swan Investment Strategy.

3) Note that the Policy and Strategy will be reviewed biannually, or as the need arises.

CARRIED

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