Investment Principles

Transcription

1 Item 9 Council 26 September 2013 Purpose of paper Action Public/Private Corporate Strategy Decision Trail Recommendations Investment Principles To seek confirmation of the investment principles approved by the Council in December 2011 For decision Public 5.0 Deliver cost effective regulation, ensuring maximum efficiency without loss of patient protection Council meeting 8 December 2011 approved the investment policy and principles Financial & Business Planning Advisory Committee 22 July 2013 agreed to recommend to Council that the current investment principles should continue The Council is invited to approve that the investment principles, as set out in Annex 1 be confirmed Authorship and origins of paper and further information Graham Masters, Director of Finance & Corporate Services; gmasters@gdc-uk.org Appendices Annex1: GDC Investment Principles Page 1

2 Executive Summary 1. The current investment strategy and principles to invest approximately 12.0m in equities and fixed income securities, was implemented in May It is proposed that this strategy, which to date has achieved its objective of achieving returns broadly equal to inflation, be continued. Introduction and background 3. Smith & Williamson are the appointed GDC s investment advisor, to assist the GDC in the management of an investment strategy that takes account of the GDC s statutory role as regulator, its accountability to Parliament, and, as a result, its need to invest prudently, avoiding unnecessary risks. 4. The Council, in December 2011 agreed that up to 12m be invested in a mix of equities and fixed interest products. This investment took place during the summer of The approved investment strategy has been implemented accommodating the monthly seasonal variations in cash balances. A minimum of 5.0m is kept in available cash bank current accounts on a continuing basis. 6. The investment strategy involves a risk profile of low to medium, seeking to achieve returns broadly equal to inflation. This reduces the proportion of investments held in equities and hence the value of taxable capital gains. Agreed investment profile 7. As indicated above, the value of cash included in the investment strategy is linked to projected cash balances. It is suggested that the profile adopted in 2012, based on the minimum level of projected cash balances [other short term cash balances are managed by the Finance team, through the use of short term, up to 3 month bank deposits, at one or more UK clearing banks - currently Lloyds Banking Group and Barclays Bank], be maintained. If at any time cash balances reduce below the minimum agreed of 5.0m, the Finance team would manage the partial withdrawal of investments in discussion with the advisors, Smith & Williamson and then reinvest when adequate cash funds are available. 8. The profile at the time of investment was: Finance team managed: Current account cash Short term bank deposits Investment advisor managed: UK Equities Overseas Equities UK Fixed Interest Seasonal minimum level of projected cash m [Oct/Nov] 5.0m 0.0m Seasonal maximum level of projected cash m [Dec] 5.0m 17.0m 1.0m (range: 5% - 15%) 1.0m (range: 0% - 10%) 10.0m (range: 85% - 95%) Investment advisor total 12.0m 12.0m GDC total funds available 17.0m 34.0m Page 2

3 9. At 30 June 2013 investments managed by Smith & Williamson were as follows: Initial investment 30 June 2013 Increase in value Equities 2,000 3, Unit trusts [as at 31 Dec 2011] 579 Fixed interest 10,000 10, Total 12,579 13, The management of investments by Smith & Williamson has been in place for approximately one year and in that time the return on the initial value has been 5.2%, compared to the target RPI benchmark of 3.3% over the period. Risk profile 11. The capital value of investment in financial instruments, other than cash, can fluctuate, potentially exposing the GDC to a risk of diminution in values of investments made and hence a reduction in reserves. This risk is generally accepted to be greater when viewed in the short term [one to two years], with higher expectation of capital growth over a longer term [say five years plus]. All investments are realisable within 7 working days, apart from short term bank deposits that may be unavailable for up to 3 months. 12. Low to medium risk profile can be measured by reference to the volatility of returns. A low to medium risk profile would expect less volatility than the FTSE All Share index which is made up entirely of equities. Lower volatility, achieved through investing in a diversified portfolio also generally results in lower returns, over a longer time period, but this is considered acceptable because the risk of significant loss is also lower. 13. All investments are in a Nominee company name to minimise any risk of advisor default. Ethical investment 14. The approved investment principles statement makes no reference to ethical investment as that is considered as part of the investment profile. However it is agreed, that the GDC s investment strategy should be to avoid or, where this is not possible, minimise to the greatest extent, investment in these broadly defined sectors: a. Alcohol b. Tobacco c. Healthcare Exclusion of alcohol, tobacco and healthcare sector is considered appropriate as all have a specific impact on oral health, or in the case of healthcare, could be seen as a conflict of interest for the GDC. Risk Implications 15. The capital value of investment in financial instruments, other than cash, can fluctuate, potentially exposing the GDC to a risk of diminution in values of investments made and hence a reduction in reserves. This risk is generally accepted to be greater when viewed in the short Page 3

4 term [one to two years], with higher expectation of capital growth over a longer term [say five years plus]. Public protection implications 16. The objective of this investment strategy, over a five year period, is to generate returns in excess of RPI, providing increased funds for protecting patients and regulating the dental team. Equality and diversity implications 17. None arising from this paper. Policy and Communications implications 18. The GDC communicates with registrants through the Annual Report & Accounts process, its desire to generate maximum returns on assets under its control using an investment strategy that avoids undue risk to the GDC s regulatory responsibilities. Legal implications 19. All investments are held in a Smith & Williamson managed Nominee company name to minimise any risk of advisor default. Resource implications 20. None arising from this paper as the involvement of GDC staff is minimal and linked to the management short term bank deposits. Smith & Williamson fees are a maximum of 0.6% pa of the value of the investments being managed. Recommendations 21. The Council is invited to approve that the investment principles, as set out in Annex 1 be confirmed. Page 4

5 Annex 1 GDC Investment Principles Introduction 1. This statement of Investment Principles is aimed at providing a guide to how the Investment Strategy is implemented. Investment Principles 2. The GDC will aim to achieve an investment risk profile that seeks to achieve returns broadly in line with inflation. 3. Reserves would potentially be available for investment for 5 years duration, but the ability to liquidate some investments at short notice should be maintained. 4. The GDC would always retain ultimate decision making powers in relation to investments, however day to day decision making powers could be delegated to the Investment Manager on terms to be agreed. 5. Specific companies or broad identifiable market sectors, as agreed from time to time between the GDC and the Investment Manager, will be excluded from the investment portfolio, in lieu of setting an ethical investment policy. 6. Investment income will either be reinvested or remitted to the GDC, in accordance with terms agreed with the Investment Manager. 7. Custody of investment documents [share certificates etc] will be agreed between the GDC and the Investment Manager, however where they are held by the Investment Manager they will be in the name of a Nominee company. 8. All investments would be realisable within 7 working days, apart from short term bank deposits that may be unavailable for up to 3 months. 9. Short term funds will be deposited with banks as approved from time to time by the GDC, currently Lloyds Banking Group and Barclays Bank. Page 5