Thursday 5 July 2018

Multi-million pound investment failed to impress

EXCLUSIVE by EWAN LAMB

Elected members of Scottish Borders Council agreed in 2013 to move more than four million pounds of cash from hundreds of local trusts and charities they administered into a single investment fund with a performance target of LIBOR - the London offered bank rate - plus four percent.

But despite promises that yields from the Newton Real Return Fund [NRRF] "should increase the income of all the entities moving funds out of the council", the fund consistently failed to hit its ambitious targets and produced much lower than expected returns over four years.

The disappointing dividends generated by NRRF prompted the council to spend 15,000 pounds on commissioning accountants KPMG - auditors of both SBC and Newton's at the time the multi-million pound deposit was made - to recommend an alternative investment fund for the cash. As a result all of the money has now been switched to the Kames Capital Diversified Income Fund in a bid to improve the situation.

Newly published annual accounts for the various local trusts including the region's seven Common Good Funds show that 'disinvesting' from Newton - a move approved by the council last December - has cost these seven town funds a total of 101,000 pounds.

The poor performance of investments of Common Good monies - some 2.6 million pounds - has been a bone of contention for many years. Prior to 2013 the money had been earning less than 0.5% in SBC's own loan fund.

It had been thought professional advisers and fund managers would boost the various kitties. So all 32 Borders councillors who are the nominated trustees responsible for the various local funds and bequests will no doubt be hoping Kames Capital comes to the rescue.

The 2013 decision to invest in NRRF, a subsidiary of the Bank of New York Mellon Corporation, meant combining the cash assets of a range of entities under council control and sinking it into a single fund.

As well as the money from the Common Good funds the mass transfer also involved most of the assets from around 290 separate organisations, 112 of them registered charities. A number of these were formed originally to look after money gifted by generous Borders benefactors in the Victorian and Edwardian eras.

This diverse range of trusts include : Anderson Trust “For the poor of Selkirk” - balance in 2013 2,053 pounds; William Forrester’s Bequest “Poor and distressed, Galashiels” 23,493; Mary Allan Bequest “Peebles Senior Citizens”3,981; James Hart Trust Fund “Spinsters – Selkirk” 5,937; Colvins Fund “Poor in parish of Lauder” 4,130; Dunlop Bequest “widows and spinsters – Duns” 93,471; Katherine Veitch Memorial Fund “women of Jedburgh” 17,562; Marion Law Bequest “Aged and Poor in Hawick” 8,533. 

It was also decided to invest a 420,000 pounds bequest made to Scottish Borders Council by the late George Knox, a former town clerk of Galashiels who left instructed that the money should be used for the benefit of elderly people in the town. And a further 155,000 pounds from the William Hill Trust, based in Melrose, also went into the Newton Fund. Mr Hill was another wealthy benefactor who died in 1974, and his trust has already provided many financial contributions for local organisations.

The recommendation made in 2013 to put all of the council's eggs in one investment basket was accompanied by a report which claimed: "The use of the approved Common Good and Trusts Investment Fund should increase the income for all of the entities moving funds from the Councils Loans Funds, where they currently earn less than 0.5%, to the new investment fund, which has a performance target of LIBOR + 4%."

"Since these investments are seen as being for medium and long term holding no significant risk to the financial position of the funds is identified."

The report went on to stress: " There are positive impacts upon the quality of community life and improvements in local amenities. The potential improvement in levels of income through the use of the new investment fund will act to make a number of the funds more sustainable in the future."

Unfortunately things do not appear to have worked out that way. It is believed several stakeholders in the Common Good funds expressed dissatisfaction with the returns on investment which were typically in the 1.8% to 3% range.

A report presented to the Jedburgh Common Good Fund Committee in December 2017 admitted: "The Capital and Investments Manager advised that the Newton Fund had once again delivered a negative return (-0.6% against benchmark of +1.1) in the quarter to 30 September 2017. General hedging against risk within the portfolio had contributed to this negative return and negative returns from corporate and government bonds were also seen.

"This negative quarterly return had resulted in a 5 year rolling return which was below the 5 year benchmark, which the fund was ultimately measured against (3.6% against benchmark of 4.4%). The fund has delivered below benchmark performance in the last 5 quarters."

Meanwhile the William Hill Trust committee was told a few weeks earlier: "The Council's Investment adviser KPMG was commissioned to evaluate and report on the continued suitability of the Newton Fund going forward. KPMG have concluded this assessment and have indicated there are more attractive options available within the market which would provide improved performance, whilst continuing to provide reasonable rates of income (through dividends) as well as capital preservation."

Then the common good committees were informed earlier this year that as part of the move from Newton to Kames the fee of 15,000 pounds had been incurred for the role of KPMG, the council's pension fund investment adviser, in selecting and recommending Kames Capital as the replacement for Newton.

The Common Good fund accounts for 2017/18 show a net reduction in funds of 289,000 (reduction in 2016/17 was 150,000 pounds) from 13.745 million pounds, including property and land to 13.456 million pounds. The Governance Costs - the sum charged by the council for administering the funds - increased last year from 48,000 pounds to 57,000 pounds. Income from investments was up slightly from 69,000 pounds to 75,000. That represents a 2.8% return on the 2.659 million pounds invested.








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