By Tash Shifrin
18 September 2009
Councils could pool up to £30bn of their cash in a dedicated investment fund under Local Government Association plans drawn up following the Icelandic banking fiasco.
The LGA’s executive was set to discuss a professionally managed investment fund at its September 17 meeting as councils increasingly seek ‘safe havens’ for their money after the Iceland debacle and the financial crisis. Around £1bn of local authority money is still frozen in Iceland’s collapsed banks.
The flight to safety has increased councils’ use of the Treasury’s Debt Management Office by 15-fold in a year, although this generates only low returns.
Stephen Jones, the LGA’s director of finance and performance, told the Local Authority Treasurers’ Investment Forum on September 10 in London that councils could use their combined resources to get a better deal than they did in isolation. ‘We don’t think local authorities use their collective power over investment enough,’ he said.
An LGA executive agenda paper also suggested that a pooled fund could relieve pressure on individual council treasury management teams. It noted that managing deposits in the banks ‘requires considerable skill and constant vigilance if the risk of loss is to be successfully managed’.
It added: ‘A collective fund, professionally managed on behalf of councils as a whole, could enable some of the disadvantages of the present system to be overcome.’
The executive was also set to discuss whether pension schemes could pool their long-term investment funds to provide loans to schools’ Private Finance Initiative projects. This would reduce PFI borrowing costs, which have soared in the downturn.
Chris Leslie, director of the New Local Government Network think-tank, which has promoted the idea of a mutual fund, welcomed the LGA’s discussion as ‘a landmark’.
He warned the London treasury management conference that ministers could attempt to use the funds in the DMO. ‘The temptation to begin sequestering or holding on to those supposedly dormant assets... will be very high. It could solve all sorts of problems,’ he said.
18 September 2009
Councils could pool up to £30bn of their cash in a dedicated investment fund under Local Government Association plans drawn up following the Icelandic banking fiasco.
The LGA’s executive was set to discuss a professionally managed investment fund at its September 17 meeting as councils increasingly seek ‘safe havens’ for their money after the Iceland debacle and the financial crisis. Around £1bn of local authority money is still frozen in Iceland’s collapsed banks.
The flight to safety has increased councils’ use of the Treasury’s Debt Management Office by 15-fold in a year, although this generates only low returns.
Stephen Jones, the LGA’s director of finance and performance, told the Local Authority Treasurers’ Investment Forum on September 10 in London that councils could use their combined resources to get a better deal than they did in isolation. ‘We don’t think local authorities use their collective power over investment enough,’ he said.
An LGA executive agenda paper also suggested that a pooled fund could relieve pressure on individual council treasury management teams. It noted that managing deposits in the banks ‘requires considerable skill and constant vigilance if the risk of loss is to be successfully managed’.
It added: ‘A collective fund, professionally managed on behalf of councils as a whole, could enable some of the disadvantages of the present system to be overcome.’
The executive was also set to discuss whether pension schemes could pool their long-term investment funds to provide loans to schools’ Private Finance Initiative projects. This would reduce PFI borrowing costs, which have soared in the downturn.
Chris Leslie, director of the New Local Government Network think-tank, which has promoted the idea of a mutual fund, welcomed the LGA’s discussion as ‘a landmark’.
He warned the London treasury management conference that ministers could attempt to use the funds in the DMO. ‘The temptation to begin sequestering or holding on to those supposedly dormant assets... will be very high. It could solve all sorts of problems,’ he said.
