by DOUGLAS SHEPHERD

An investment strategy review is being recommended after the market value of surplus cash deposits from nine Borders Common Good funds and a group of charitable trusts suffered a £339,000 hit, reducing their combined worth by more than six per cent.

Scottish Borders Council, which manages the assets of the various funds, has invested just over £5 million of the 'spare' money in a single fund, Aegon Diversified Monthly Income B Inc, since February 2018. The cash was previously deposited in a different fund, but it was moved because returns were not up to expectations.

Members of the local authority are told in a report to be considered at a meeting next week that approval is needed to undertake a review of the Common Good Funds and Trusts Investment Strategy to ensure that the current fund manager and investment plan is appropriate to maximise return and growth on the funds. 

The report from Kirsten Robertson, the council's Treasury & Statutory Reporting and Business Partner, that in March 2024 there was an unrealised loss on the £5,036,662 invested funds of £339,919, a capital loss of 6.75%.

An unrealised loss is a decrease in the value of an asset that has not yet been sold, but the market value has dropped below the price originally paid. 

According to the report: "Therefore, if we were to disinvest all funds at this time, we would only receive 93.25% of our original investment back. At 31st March 2024, total income received on this investment since original investment date was £1,487,385, an income return of 29.53%. This is distributed to Funds for their use on a monthly basis, not added to the original investment.

"The Aegon Fund’s investment objective is to provide income with the potential for capital growth over the medium term by investing mainly in a diversified portfolio of equities, bonds and derivatives denominated in any currency. The Fund targets a yield of 5% per annum, aims for growth of 2-3% per annum, to maintain the purchasing power of income and is committed to providing a sustainable income by not paying out capital as income."

To date the fund has achieved its target regarding yield however the medium term target around growth has not been achieved. The review will consider if the current fund is still the most appropriate given the changes to the economic climate since 2018. 

It is proposed the review be undertaken by Isio, the Council pension fund advisors, who also advised on the appointment of the Common Good funds and Trusts current investment manager. 

The scope of the review will include a summary of the Aegon fund’s current objectives and expected future income needs; an overview of the current market environment and how this has changed since 2018; an overview of the Fund’s current manager allocation (the Aegon Fund) and the key characteristics of this, how the asset allocation has changed since 2018, along with a peer group analysis of the Aegon Fund; and a high level consideration of alternative strategy options for the investment and the advantages and disadvantages of each alternative. 

The unrealised losses for the various funds and trusts are:

COMMON GOOD   INVESTMENT    MARKET VALUE     LOSS

Duns                            £17,128                    £15,938                   £1,190

Galashiels                   £160,093                  £148,976                  £11,117

Hawick                       £457,995                  £426,166                  £31,829  

Jedburgh                     £967,106                  £903,211                  £63,895

Kelso                          £281,074                  £261,654                  £19,420

Lauder                        £249,977                  £232,604                  £17,373

Melrose                      £15,408                    £14,501                     £547

Peebles                       £506,096                  £470,580                   £35,516

Selkirk                        £259,057                  £240,631                   £18,426 

CHARITABLE TRUSTS

                                  £202,210                    £188,157                   £14,053

ENHANCEMENT TRUST

                                  £177,114                    £164,807                   £12,307

WELFARE TRUSTS

                                  £623,062                    £579,761                  £43,301

UNREGISTERED CHARITIES AND BEQUESTS

                                  £1,105,870                 £1,035,955               £69,915