Contact: David Wilson, ext 7407

1 Introduction

1.1 At its meeting in June 2005, the Panel considered a report projecting the level of the Fund's central cash balance held on deposit with the County Council. Increasing levels of employers' contributions into the Fund were expected then to lead to rising cash balances of over £100m by March 2006 if no action was taken.

1.2 The Panel endorsed a decision under delegated powers to allocate a total of £17.5m to Schroders and SGAM on 1 April 2005 for management as part of their portfolios, and agreed that another £17.5m would be allocated on a similar basis on 1 July 2005. Aberdeen (Deutsche) were not allocated any of the cash in view of their poor returns at that time.

1.3 The Panel also authorised the County Treasurer to allocate further cash for management at regular intervals thereafter subject to performance being at, or close to, the benchmark over six months, one year and three years as a minimum requirement.

1.4 This report:

· Updates the projection of the Fund's cash balance held centrally in the County Council's bank account from 31 March 2005 and projects this to 31 March 2007 and beyond.

· Recommends that the projected increases in the Fund's cash balance be held on deposit with the County Council pending the outcome of the review of the Fund's management arrangements.

1 Cashflow forecast to March 2007

1.1 The table below sets out cashflow projections 2005/06 and 2006/07.

1.2 The table shows that the rise in the cash balance is accelerating as a result of increased employers' contribution rates. By April 2008 the balance could be as high as £200m were no action to be taken.

2 Proposal

2.1 A cash float of around £20m needs to be retained centrally for the payment of pensions and other unexpected cashflows. The above table shows that there is likely to be uncommitted cash of £55m available at 1 April 2006, after deducting the cash float.

2.2 However, in view of the ongoing review of the Fund's management arrangements, it is suggested that it is not appropriate to hand further cash sums to the managers now. It would risk increasing any transaction costs needed to implement any revised structure, and would reduce the Fund's flexibility, should it decide, for example, to invest significantly in alternative investments such as hedge funds, private equity or indirect property vehicles.

2.3 It is suggested that these increasing cash balances be held on deposit with the County Council pending longer-term decisions on new alternative investments, or any restructuring of the Fund to match a new benchmark. In considering this the Panel would need to be aware that investing cash generally generates better returns than holding cash unless a major collapse in markets is anticipated.

Recommendation

1 That the projected increases in the Fund's cash balances be held on deposit with the County Council pending the outcome of the review of the Fund's management arrangements.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

1. Published works.

2. Documents which disclose exempt or confidential information as defined in the Act.

TITLE FILE

None.