Performance Management in Treasury Management

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Performance Management in Treasury Management

• Innes EdwardsTreasury Manager
• The City of Edinburgh Council

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Treasury Management

• Banking
• Investment of Surplus Funds
• Cash Flow Forecasting and Management
• Capital Financing
• Leasing Portfolio Management
• Debt Portfolio Management
• Co-ordination of the Councils strategic
  approach to the Euro

3
Treasury ManagementCritical Success Factors

• Borrowing Strategy and the timing of its
  implementation
• Success of the pro-active debt management
• Investment performance
• Cash flow accuracy
• Best funding options taken for the Council
• Management of Risk.

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Treasury ManagementPerformance Indicators
Statutory

• Scottish Local Government Financial Statistics
• Prudential Indicators

Key Performance Indicators

• Directors of Finance Indicators

Other

• CIPFA Statistical Information Service -
  Capital Expenditure Treasury Management

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Treasury ManagementStatutory Returns
9bn council debt fiasco (So now you know why
your local authority bills keep going up)
Councils in Scotland are deeper in debt than
most African Countries. If Scottish Councils
were classed as a country, it would be placed
69th in a list of the nations most in debt
higher than Angola, Uganda, and Liberia, and just
behind Sudan
Daily Mail, January 20, 2006
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Performance - Banking
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Performance - Banking
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Performance - Banking
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Performance Cash Management
Best Value (and Best Practice) require
comparisonof performance against Benchmark
Money Market Funds and External Specialist
Fund Manager
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Performance Cash Management
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Performance Cash Management
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Performance Cash Management
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Cash ManagementManagement of Risk
Remember BCCI.
Western Isles stand on the brink of economic
and social disaster
West Highland Free Press, Nov 15, 1991
up to 300 jobs could be lost. plus mass
emigration
Stornoway Gazette, Nov 16, 1991
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Cash ManagementManagement of Risk
In managing risk, it is important that the
approach taken is to manage the risk and not to
spread the blame
Innes Edwards, March 03, 2005
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Performance Cash Management
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Cash ManagementExternal Cash Manager
External Manager

• Appointed 01 July 1998 for 15 month period
• 15 million portfolio on a Discretionary Basis
• Fixed deposits upto and including 364 days
• Deposits at call, two or seven day notice
• Top-sliced CEC Treasury Policy limits

In-House

• 15 million portfolio on exactly the same basis

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Cash ManagementExternal Cash Manager
Lessons

• In-House Out Performance
• Top Slicing reduced overall performance
• Top Slicing concentrated risk to an extent
• Management Fees 25,800

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Cash Management - Performance
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Performance Treasury Mgt Directors of Finance
Indicators
Headline Performance Indicators

• Average Cost of servicing Loans Fund advances in
  the year (Loans Fund Interest Expenses Rates)

Local Performance Indicators

• Percentage of Debt at year end which is short
  term or variable
• Percentage of Debt at year end repayable in each
  of the next two years Percentage of Debt at year
• Average Interest Rate of longer term debt raised
  in the year
• Average maturity of longer term borrowing raised
  in the year

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Performance Debt Management
The Its not my fault slide RMASP May 2002
The premium for this loan is currently18.2
million
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Performance Debt Management
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Performance Debt Management
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Performance - Debt Management
2001/02
2002/03
2003/04
4.3m fixed 1.5 years
81m variable 1 year
18m fixed 1 year
116m Maturing Debt 235m Debt Restructuring
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Performance Debt Management
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Performance Debt Management
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Performance Debt Management
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Performance Debt Management
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Performance Debt Management
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Performance Debt Management
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Performance Borrowing
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Performance - Borrowing
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Performance Debt Management
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Performance Debt Management

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Performance Treasury Mgt Prudential Indicators
Capital Expenditure

• Capital Expenditure
• Capital Financing Requirement

v
Affordability

• Ratio of Financing costs to Net Revenue Stream
• Incremental Impact of new capital decisions on
  Council Tax and House Rents
• Net External Borrowing and the Capital Financing
  requirement

v v
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Performance Treasury Mgt Prudential Indicators
External Debt

• Authorised Limit For External Debt
• Operational Limit for External Debt
• Actual External Debt

Meaningless
Treasury Management
.

• Adopted the CIPFA Treasury Management Code
• Upper limit of fixed rate borrowing
• Upper limit of variable rate borrowing
• Maturity structure of fixed rate borrowing

Sensible but in wrong Code
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Performance Treasury Mgt Prudential Code
Option Appraisal

• Option Appraisals being carried out?
• Finance Lease / Op. Lease / Borrowing / Other?
• Marginal Rate?
• Council / STO position?
• Sensible Answers?
• ( CEC now borrowing for Waste Management
  Containerisation Project)

.
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Treasury ManagementCIPFA Benchmarking Club

• Only one other Scottish Authority was a member
• No members with a comparable level of debt
• No analysis of the different objectives and
  strategies
• Different English Investment Regulations

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Treasury ManagementCIPFA Benchmarking Club

• Investment Costs
• CEC Cost 280 per million managed
• Average in-house Cost 780 per million managed
• Average external Manager Cost 1,510 per
  million managed

• Debt Management Costs
• CEC Cost 420 per million managed
• Average Cost 420 per million managed

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Performance Debt ManagementTotal Cost of Debt
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Treasury Management Performance Summary

• Treasury is a long-term activity
• Look behind the headline numbers
• Treasury has bailed out Revenue Budgets
• Consider Risk as well as Return
• The Press dont like good news