Meeting documents

Members will be given an overview of the principles underlying the draft Capital and Investment Strategy. Following discussion, the Committee will have the opportunity to provide feedback to the Cabinet Member and the Director of Finance & Procurement on the draft strategy, ahead of it being considered at Cabinet in December 2018.

Contributors:

Mr John Chilver, Cabinet Member for Resources

Mr Richard Ambrose, Director of Finance & Procurement

Mr Oster Milambo, Deputy Head of Strategic Assets

Mr Mark Preston, Head of Finance – Resources & Pensions

Mr John Reed, Director of Property & Assets

Papers:

Presentation and draft strategy attached.

The Chairman welcomed Mr John Chilver, Cabinet Member for Resources, Mr Richard Ambrose, Director of Finance and Procurement, Mr Mark Preston, Head of Finance – Resources and Pensions and Mr John Reed, Director of Property and Assets to the meeting. 

The Cabinet Member explained that the new Capital and Investment Strategy had been drafted in response to new guidance from Government and would bring together three separate elements - Capital strategy, Investment strategy and some aspects of the Treasury Management strategy.  This would also increase transparency. 

10.10am Ms Sarah Ashmead, Executive Director for Resources joined the meeting.

Mark Preston provided an overview of how the strategy had been developed and key themes.  During the presentation and in response to Members’ questions the following main points were noted:

• This was a high level strategy that would be underpinned by other detailed plans, as outlined in P1.5. It would also demonstrate how the capital programme aligned with the Council’s overall strategic aims.
• Members had a number of specific questions on the Council’s Investment portfolio. The Strategy stated that the Council ‘should aim to have an investment portfolio in the region of £250m.’ Members were advised that this figure had been reached in order to ensure a fully diversified portfolio of investments and partly in relation to anticipated revenue pressures that the Council could have in future – i.e. a £250m portfolio should produce £15m gross income per annum, based on a 6% net yield.  The suggested £250m level had also been proposed based on discussions with the Council’s property advisers, Carter Jonas.
• This figure was a target, which would clearly depend on opportunities which become available, but it would allow for diversification of the portfolio and one of the key performance indicators would be the value of rent generated towards the net budget.  The £250m figure would be reviewed regularly - £150m was seen as the minimum requirement.
• A Member asked if the strategy would need to be amended in light of the recent Unitary announcement for Buckinghamshire.  The Director of Finance and Procurement advised that a strategy needed to be agreed by the Council and a new Unitary authority would have to agree it’s own strategy once it had been established. Currently the governance arrangements for transition were still to be agreed.
• The Director of Property and Assets explained that he might need to add additional asset management resource to his team, but it would depend on the scale and nature of the assets the Council acquired. It was important to track changes in yield and capital value regularly in order to maximise the return.
• Members noted that a new governance structure had been introduced, including a Property Board which would receive regular reports on the performance of the investment portfolio and would produce an annual report.
• Members sought assurances around the due diligence process and expressed concerns about the possibility of being over-exposed in retail, given the recent downturn in this sector. The Committee heard that due diligence was critical and the Council has professional advisers and in John Reed, the new Director of Property and Assets, in-house expertise in commercial investment.  John Reed agreed with Members concerns about the retail sector and agreed that due diligence was vital, especially as the market was continually evolving.
• The Cabinet Member for Resources assured members that the due diligence process was not short-circuited and there had been some investment opportunities which had been missed because of the Council’s adherence to following this process. All acquisitions were looked at on their own merit (as well as the fit with the rest of the portfolio) and potential for alternative use was always considered.
• The Chairman requested that the strategy should use the term ‘average yield per annum’ rather than ‘blended yield’ as this was more understandable and transparent for the public.  The Director of Finance and Procurement also agreed to strengthen the risk management element.

Action: Director of Finance & Procurement

• In response to a Member’s question regarding the financing of acquisitions, the Director of Finance and Procurement explained that the general policy would be to take a fixed rate loan and try to match this to the asset length, although it was important to ensure that all loans would not be due to mature at the same time.  The Local Government Association (LGA) was hoping to issue bonds in the near future at a cheaper rate than the Public Works Loan Board (PWLB) and a Member asked if this have been investigated.  Members were advised that this had previously been considered but the joint severance & liability was a concern.  Also the terms of the bonds were very rigid and, to date, the LGA had not issued its first bond.  This would be reviewed again once a bond had been issued.
• The Executive Director, Resources advised Members that whilst the formal governance arrangements with the Property Board were established, the Council needed to be able to move quickly in response to investment property opportunities and a process was in place to enable this.  The due diligence process would take place between bids and the final offer and the Council had a strong reputation for following through on opportunities.  The Executive Director offered to share reports from each of the new Boards which had superseded the Asset Strategy Board with the Select Committee, alongside the Annual Investment report.

ACTION: Executive Director, Resources

• Members requested a further amendment to wording in p5.3.4, asking that ‘preference’ be added with regards to properties which could have alternative uses, instead of ‘weight will be given’.  Members also queried whether the strategy should be more specific about stating which sectors the Council would choose to invest in.  However given this was a high level strategy, the Director of Finance and Procurement commented that it was better to be flexible and the strategy did state that the aim was to have a balanced portfolio.

ACTION: Director of Finance & Procurement

The Chairman thanked John Chilver, Richard Ambrose, Mark Preston, John Reed and Sarah Ashmead for attending the meeting.  It was noted that the revisions suggested by the Committee would be made ahead of the draft strategy being considered at Cabinet in December. The final strategy would then be agreed by Council in February alongside the Budget for 2019/20.