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Council / Isles funds affected by volatile markets

Councillors meeting in Lerwick Town Hall on Wednesday.

ALL THREE of Shetland Islands Council’s fund management companies failed to meet their growth targets in the financial year 2019/20.

SIC executive manager of finance Jamie Manson told councillors yesterday (Wednesday) that the year had been one of volatile markets before funds slumped early in 2020 with the onset of coronavirus pandemic.

During 2019/20 the value of the Council’s investments decreased by £27 million to £314 million, which was a combination of a £19 million fall in investment value along with £8 million of cash withdrawals from the investments.

The overall Council investment return in 2019/20 was minus 6.2 per cent (by end of March 2020).

But the council’s investments were worth about £360 million by the end of May, as much as before the crash, with markets continuing to show strong growth.

A report by Manson says: “The conclusion of the annual review is that the fund managers have, over the 2019/20 financial year, had mixed results in an unusual investing environment. Market volatility is to be expected over short time periods but over the long term the general market trend is positive.”

Manson told councillors: “Investments performed quite well until the end of January, despite the volatile markets, then dropped in February and March to –6.2 per cent.

“There is some concern that the markets may not recover for quite a while due to Covid-19.”

Manson said that though the council’s reserves had done extremely well since the crash of 2008 he was taking a more cautious view than some of the more optimistic fund managers and considered that the markets may not fully recover by this time next year.

Additionally, the UK is still in its Brexit transitional period, due to end on 31 December, with trade arrangements with the EU still up in the air.

Manson said that the council’s target of 7.3 per cent annual investment growth allows it to withdraw from its reserves without degrading its initial investment.

Bailie Gifford, which at present invests 55 per cent of council assets, exceeded the benchmark by 0.9 per cent, but still fell short of its growth target by 1.6 per cent.

Blackrock, which invests 32 per cent of assets, was 0.1 per cent of the benchmark while Insight was 0.9 per cent short of the benchmark and 2.1 per cent short of its performance target.

Manson said that the council was pulling its money out of the bond markets invested by Insight and into a new mandate for BlackRock. The report says this was not because of the performance of Insight but for the projected future low returns from bonds.