Report by the Director of Finance & Resources relating to a proposed change to the annual income targets for the Paisley and Renfrew Common Good Fund investments, and detailing proposed changes to the Investment Policy Statement relating to fixed interest stock holding and change of name of the Investment Manager.
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There was submitted a report by the Director of Finance & Resources relative to a review of annual income targets and fixed interest stocks restriction.
The report advised that the Investment Review Board at its meeting on 9 June 2021 agreed that funds from the Paisley Common Good Fund and Renfrew Common Good Fund cash balance (managed by the Council) be added to the investments managed by Aberdeen Standard Capital Limited (now abrdn Capital Limited): £0.3m for the Paisley Common Good Fund and £3.3m for the Renfrew Common Good Fund.
This transfer of funds was completed on 21 June 2021 and had contributed to a material increase in the value of funds held within each of the two investment portfolios. The corresponding increase in expected yield from each of the portfolios had not yet been reflected in any increase to the annual income targets that were in place for the Investment Manager, these targets currently being set at £113,000 for the Paisley Common Good Fund and £380,000 for the Renfrew Common Good Fund.
The report indicated that an appropriate revision to the income targets would be to apply a proportional increase in the absolute annual income target so that the target yield, based on the fund valuations prior to and subsequent to the transfer of funds that took place in June 2021, was kept relatively static.
The proposed revised annual income targets – of £125,000 for the Paisley Common Good Fund and £475,000 for the Renfrew Common Good Fund – equated approximately to a 2.4% yield, were in line with the benchmark yield and represent a demanding target, but not so much that the Investment Manager was forced to sacrifice potential capital growth in the pursuit of income.
In achieving the annual income targets set for each fund, the Investment Manager managed the funds on a discretionary basis in line with the Investment Policy Statement. The Investment Policy Statement currently contained a restriction that a minimum of 15% of the fund value should be held in fixed interest stocks. This restriction had been in place for many years and would have been established initially to ensure that income be maintained above a minimum level. However, this restriction was now forcing the manager to keep a level of fixed interest stocks which, given current market conditions, was to the detriment of overall performance.
The report intimated that since it could be demonstrated that income had compared favourably to the annual income target over several years, a minor amendment was proposed to the Investment Policy Statement that, whilst maintaining the 15% target holding in fixed interest stocks, the Investment Manager could vary from this level down to 10% or up to 20% depending on market conditions. This proposed change was reflected within an updated Investment Policy Statement appended to the report.
The report intimated that the updated Investment Policy Statement also incorporated
amendments resulting from the change of name of the Investment Manager on 24 September 2021 from Aberdeen Standard Capital Limited to abrdn Capital Limited.
DECIDED:
(a) That the revisions proposed to the annual income targets of the two portfolios: £125,000 for the Paisley Common Good Fund and £475,000 for the Renfrew Common Good Fund be approved; and
(b) That the updated Investment Policy Statements, one for Paisley Common Good Fund, one for Renfrew Common Good Fund, appended to the report, incorporating an amendment to the restriction relating to the holding of fixed interest stocks, as described in the report, and incorporating amendments reflecting the change of name of the Investment Manager be approved.