• Home
  • About
  • Newsletters
  • Conference
  • TMS Links
  • Calendar
  • Log In
  • Register

Room 151

  • 151 BRIEF

    What's New?

  • Barking and Dagenham to double external borrowing

    February 19, 2019

  • Ashfield raises property stake to £104m

    February 19, 2019

  • Ealing signs £275m development agreement for town centre

    February 18, 2019

  • Amey and Birmingham may settle road contract dispute

    February 18, 2019

  • Sutton announces new chief executive

    February 15, 2019

  • Accelerated Construction Programme makes first award

    February 15, 2019

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews
  • Jobs

Jonathan Bunt: LGPS pools could ‘add value’ by investing in housing assets

0
  • by Jonathan Bunt
  • in Blogs · LGPSi
  • — 17 Oct, 2017

Photo: Pixabay, CC0

Why did LGPS funds recently turn down the opportunity to invest in housing assets? Jonathan Bunt argues this is an area where pools could offer real value, if they can learn to move quickly and put the right mandates in place.

In recent years, there has been an absence of good quality index linked products and, as a result, those that are available are very expensive.  The demand for such instruments from funds has driven up the price and driven down the value they offer. Similarly, I have recently read a number of articles in the housing press about the attractiveness of housing assets to investors for their predictable real returns.

It is against that backdrop that we recently offered a range of funds an—albeit relatively small—long-term, housing-backed investment with a direct inflation link, to which we received a very mixed response.


Register for the Room151 LGPS Quarterly Briefing


The large city institutions took an immediate and serious interest understanding the nature of the investment and competed to become preferred bidder.  This was reflected in their pricing with offers in the range that will enable the local authority sitting behind the deal to beat the  Public Works Loan Board rates over the same period.

By contrast, the same investment opportunity received little, or no, interest from the local government pension scheme funds that were approached.  The small number of funds that gave it some consideration priced it very significantly higher than the city institutions and were, therefore, never a realistic contender.

LGPS questions

This type of index linked product fits squarely in to an LGPS portfolio as a matching asset offering a real return which, based on the offers from the large city funds, meets common actuarial assumptions. The questions that therefore followed were why LGPS funds were not interested, or competitive, plus what does that mean for the planned pools for the future?

For smaller funds, the limited capacity on pensions investments results in a restricted ability to analyse and evaluate opportunities that are directly presented. In such roles, where pensions may only be part of a role, to have the time to consider such ad hoc proposals is challenging.

In larger funds, where there is greater investment capacity, other issues were flagged. For some, whilst being very experienced managing certain types of investments, this was a different product and one they did not immediately recognise. Accordingly, one of two things then occurred.

Firstly, the knowledge, understanding and experience of the indexed linked market was missing and the fund either did not know how to price it, or priced it way off the institutional investors. Alternatively, the offer was viewed as a property investment rather than an alternative form of indexed linked credit and it was therefore scrutinised in the wrong light leading to incorrect pricing assumptions. The final issue that arose was that the governance of (many of) the funds was such that it could not even attempt a decision in the approximate one month timeframe that the process was working to.

The offer was also discussed with one of the pools and this was a very positive conversation. The gathering of investment professionals in a single place enabled a much more focussed debate on how it would fit in to an LGPS portfolio and offered indicative pricing in line with the market.  The issue for the pool was that it had no mandate for such a product as they had not been instructed by the individual funds to consider it at this point.

As a local authority finance director I was always relatively neutral about pools but it is clear to me that here is an area where they can add real value. The challenge for a pool will be to get in to a position quickly where it can gather mandates from the funds and have the authority to place investments directly. To do this successfully, pools will need to ensure it can replicate, or better, the skills, knowledge and processes of an institutional investor and respond with their agility to opportunities. Most local authorities would be much happier to seek funding on the sorts of terms that we have been able to achieve from LGPS schemes but to do so, the pools and the funds have to become market normative.

 

 

Share

You may also like...

  • Crunch time for central banks Crunch time for central banks 2 Dec, 2011
  • Alternatives to banks Alternatives to banks 6 Sep, 2012
  • Agent151: Through a glass, darkly 17 Sep, 2012
  • LGPS consultation – and a whiff of camel 6 Aug, 2014

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room 151 17 hours ago

    Business rates retention reform lacks rigour says IFS: The Institute for Fiscal Studies (IFS) says that the government’s proposals for reform of business rates retention need further work. The Ministry of Housing, Communities and Local Government (MHCLG)… dlvr.it/QzDVm8 pic.twitter.com/QKNrDyZP74

    Room 151 17 hours ago

    Ashfield raises property stake to £104m room151.co.uk/brief/#ashfiel… #localgov

    Room 151 17 hours ago

    Barking and Dagenham to double external borrowing room151.co.uk/brief/#barking… #localgov

    Room 151 2 days ago

    A busy and unpromising timetable for local authority finances: Richard Harbord looks at the large amount of central government measures affecting councils due over the next 13 months. Time is running out, the current uncertainty damaging, and the… dlvr.it/Qz81pV pic.twitter.com/FvQbpvz2dn

    Room 151 2 days ago

    Getting to grips with governance: Poor governance can make the difference between local authorities coping and not coping. Aileen Murphy explores what national government should be doing to help section 151 officers carry out their[...] dlvr.it/Qz81kf pic.twitter.com/2tywD1wu7H

    Room 151 5 days ago

    Sutton announces new chief executive room151.co.uk/brief/#sutton-… #localgov @SuttonCouncil

    Room 151 6 days ago

    Spelthorne halts commercial property investment: Spelthorne Borough Council has called time on its controversial programme of borrowing from the Public Works Loan Board (PWLB) to fund commercial property investment. Over the past three years, the[...] dlvr.it/Qyvbrt pic.twitter.com/yECeMm6uUP

    Room 151 6 days ago

    LGPS board considers guidance to avoid conflicts of interest: The LGPS Advisory Board is consulting on whether new rules are needed to avoid conflicts of interest in the governance of the scheme. It has appointed pension adviser Hymans Robertson[...] dlvr.it/Qyvbk7 pic.twitter.com/hLtp4ekKuH

    Room 151 6 days ago

    Eighty percent of councils lack faith in sustainability of local authority finances room151.co.uk/brief/#eighty-… #localgov

    Room 151 6 days ago

    MP criticises county over incinerator project room151.co.uk/brief/#mp-crit… #localgov

    Room 151 7 days ago

    How National LGPS Frameworks are saving funds and pools millions: With more than 247 contracts already let and £105m secured in savings, National LGPS Frameworks have become the ‘go-to-route’ for specialist procurement within the LGPS, according to Leon… dlvr.it/QyqR7k pic.twitter.com/Vc40cgTDjb

    Room 151 7 days ago

    Haringey reserves raid ‘unsustainable’ say officers: London Borough of Haringey has agreed plans to balance its budget for next year by dipping into its reserves and proposing £13.7m of cuts whilst increasing spending on social care[...] dlvr.it/QyqR33 pic.twitter.com/GT8PNPOAmM

    Room 151 7 days ago

    Newham aims to end non-compliance culture: London Borough of Newham has established a new commission to help it get a grip on its financial management after a series of scandals. The new body will assess the[...] dlvr.it/QyplW9 pic.twitter.com/YP1CwMtg1k

    Room 151 7 days ago

    Uttlesford to invest £50m more in science research park room151.co.uk/brief/#uttlesf… #localgov #uttlesford

    Room 151 7 days ago

    Lewes increases its room for borrowing next year room151.co.uk/brief/#lewes-i… @LewesDC #localgov

    Room 151 1 week ago

    New chief executive for LGPS Central room151.co.uk/brief/#new-chi… #lgps #localgov

    Room 151 1 week ago

    Hertfordshire facing £3.6bn infrastructure funding gap room151.co.uk/brief/#hertfor… #localgov #hertfordshire

    Room 151 1 week ago

    Brent primed to borrow more and increase investment returns: Brent Council in its Treasury Management Strategy published this week has restated that it will probably need to borrow more in the coming financial year, and has said that it[...] dlvr.it/QyjyxF pic.twitter.com/k06kRX1NLc

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
  • Archives

    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story LGPS Pools Roundup: Brunel appointments, mandate for UBS, CFO for Central, credit fund launch
  • Next story Bob Swarup: The only certainty for investments is uncertainty

© Copyright 2019 Room 151. Typegrid Theme by WPBandit.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we'll assume that you are happy to receive all cookies from this website.OK