Kevin Bartle on £41m of cuts, counterparty risk & Iceland

Kevin Bartle is interim CFO at the London Borough of Haringey. He trained with Bedfordshire County Council, which he joined in 1980. He progressed to become deputy CFO with Bedfordshire and joined Haringey in 2005 as head of finance and the children and young people service. He was promoted to head of corporate finance has been interim CFO since February 2012.

Room 151: There are a lot of local government property reviews going on presently. Are you one of the councils looking at your property assets?

Kevin Bartle: Yes, we have a strategic review of property and accommodation ongoing. We are trying to reduce the number of offices we use, do hotdesking where we can and have been looking at a community hubs project where if you have a library in a particular area, for example, we are looking at whether that can take on other functions – non library functions – to be a community facility. It’s not in place but is something we are very much considering. We’ve been doing this sort of work for two years now.

Room 151: What sort of savings should you make?

KB: We know what we are planning to make, we have £1.2m to save out of next year’s budget, we’re on our way to doing it but it is one of those savings targets that has an amber risk on it. All sorts of things happen, you might try and divest yourself of a building and end up not being able to do it, but at the moment taking £1.2m out of costs through the accommodation strategy is our plan.

Room 151: How is your HRA and general borrowing situation looking?

KB: We have 230-odd million in debt paid off, we had a significant amount of debt. But our overall strategy at the moment is to maximise internal borrowing as much as we can. Every opportunity we get we don’t borrow. When a loan comes up for replacement if we don’t have to replace it we won’t. We have done a lot of short term stuff until the HRA thing was sorted. Going forward we are going to have a bit of capacity for more external borrowing through housing: with the HRA reforms we are going to have a gap and we’re now considering what we are going to do with our housing strategy going forward.

In fact I’m about to go to a meeting to consider it all; we’re talking to the council about what we are doing about different areas of the borough and part of that will be what capacity we have to go up to the ceiling. We have some capacity, we could probably do another £50m of borrowing without it being too much of a difficulty. We will also consider whether it’s best to do that ourselves or whether there will be an external vehicle.

Room 151: Do you lend to other authorities?

KB: We very rarely lend to other local authorities although we have taken money from them and got some amazingly good rates, we would happily borrow but the opportunity with the right rate hasn’t arisen.

We are doing a lot with money market funds. We have three or four. We have a net revenue position of £280m and we’re not far off a billion gross in the general fund – so it’s big.

Because of Iceland we are risk averse so very careful about counterparties in general. We have a restricted list now, only UK institutions and even then only the top four or five. With recent downgrades we have been moving a lot more to AAA rated money market funds on the basis that funds are distributed across highly rated counterparties. They’re liquid so you can get your money back tomorrow if you want it; we feel that is the way to go. Also they are doing better than the DMO – a bit.

Room 151: It seems that some money market funds are turning to Australian, Japansese and US paper as they too have a dearth of counterparts. Does that bother you at all?

KB: I guess not. We haven’t talked to them to say ‘don’t put your money there’. We’ve allowed them to decide where the money goes and we don’t actively review their counterparty lists. As long as they are AAA rated funds and they don’t do strange things like invest in derivatives, we’re ok with it. We are careful about which funds we use because some of them put things all over the place – we’ve discounted those. A couple of our MMFs only invest in government paper.

Room 151: How are you meeting the challenges of austerity and what specific measures have you taken to make additional savings?

KB: We’re quite proud that in the first year of austerity, i.e. 11-12, we’ve taken a £41m reduction out of our general fund. That is a significant cut. I can find few colleagues who have taken that much out. We’re going to have achieved that and extra by the close of the account for 11-12. Obviously we’re working hard on the next round of savings but we have a bit of breathing space now that we have done that £41m. So 12-13 and 13-14 don’t look too bad. We’re starting to look at what we can take out in 14-15 where there is a lot less clarity around funding.

We have had to cope with the additional costs of the riots in Tottenham, but we’ve had support from government on that. We’re looking to regenerate the borough and have put money into regeneration in the last budget.

Going forward we are looking at working with other boroughs. We have a memorandum of agreement with Waltham Forest to share services with them. We’re looking at a shared platform for our IT, both boroughs use SAP and our contracts are coming to an end so we are looking to have one contract for both councils. Potential back-office sharing is one of our big targets for the future, that’s one of the things we’re looking at to make those savings in 13-14.

Room 151: You mentioned Iceland, are you getting money back at the moment?

KB: We were an Icelandic borough, had just shy of £37m in Icelandic banks but recovery is going very well, far better than I even dared hope actually.

Room 151: Does the money coming back to you in different currencies pose a challenge?

KB: With Heritable it’s all Sterling dividend payments, that is going well and I’m on the creditor’s committee for the Heritable bank. Then we’re getting money back from Glitnir, partly in Sterling, partly in other currencies but in terms of exchange rates we are still going to get 100% of our investment back.

We just want the money back, we’re happy to take it and if we have to go through rigmarole to get it back into Sterling we will. It’s a bit of a hassle but in comparison to not getting the money back it pales into insignificance. So yes, we’ll do the faffing around if we have to.

Room 151: What timeline have you been given?

KB: The latest I’ve heard is 2014 for getting the last of it back and again, we’d rather take the time and get the money back. When we talk about this with local government colleagues we’re all of the same mind: some people are saying take 80% and we’ll pay you now, they know it’s a good position and are trying to make a little turn on it but we’re in it for the long game and would try and get the highest possible return.

Room 151: On the pension side LGPS is gradually moving towards alternative assets. What does your asset allocation currently look like and can you talk us through the process of evaluating and eventually investing in a new asset class?

KB: We currently invest 85% of the Fund in equities and bonds and the remainder is allocated to alternatives – 10% in a property fund of funds and 5% in a private equity fund of funds. The first stage when considering a new asset class is education of our members to ensure everyone understands exactly what we would be investing in and the potential risks as well as the potential returns. Any asset class would need to fit with the rest of the fund’s investment strategy and the structure of our liabilities before considering an investment.

Room 151: Are LGPS funds too slow to react to market opportunities?

KB: LGPS governance arrangements can make it hard to take opportunities when they arise, but most funds are aware of this and have procedures in place to react quickly when required.  However it is more important to understand all the potential risks of an opportunity rather than rushing in and regretting it later.

Room 151: Is LGPS a “ticking time bomb”?

KB: No. Although most funds are in deficit, all have a funding recovery plan in place to get back to full funding. The current review of the scheme should reduce costs further and make the scheme affordable for the longer term.