Editor’s blog: a crossroads for treasury
0Crossroads, the cultural and professional kind, are hard to spot. They mark a transition to a new era when former attitudes and assumptions are brought into question. But sometimes they appear almost imperceptible.
The recent Room151 Treasury Think Tank in Manchester served to highlight that local authority treasurers up and down the country may be entering into a period of change, a crossroads taking them from some old ways into the new.
Some treasurers may be storming across the junction, keen to forge new routes. Others may be waiting to see where it takes the pathfinders. Yet others, according to the tone of some comments, may be holding the map upside down.
Perhaps the most marked change, and one well sign-posted, is the move away from unsecured bank deposits.
No-go areas
Regardless of where treasurers park their councils’ cash it’s pretty clear now that some of the sector’s big hitters regard banks almost as no-go areas. Mike Jensen, Lancashire’s chief investment officer, made the point emphatically with a statement that the county hasn’t put money into banks or building societies for four or five years. The risk of a haircut, under EU rules, is just too painful to contemplate.
Then there is a more subtle shift in thinking, one which sees a portfolio considered holistically, but also one in which attitudes to “liquidity” and “security” are re-evaluated. The thinking was captured by Luke Webster, chief investment officer for the Greater London Authority, who called for a rethink among treasurers on what he called “an obsession with holding things to maturity.” He says: “…people need to move away from the sort of lazy mantras of fearing a capital loss.”
There’s no escaping the implication of that thought – treasurers will also need to reconsider their approach to risk. Not so easy since the Icelandic crisis, nor in an environment in which austerity means council resources are under severe pressure. But doesn’t austerity also mean there’s a bigger job of work to be done making local authority money work a little harder, as well as – and quite appropriately – remaining safe? It’s a big question and must be on the minds of treasurers everywhere.
Of course, the transition may mean thinking among many treasurers is moving more quickly than central government. Indeed, the Think Tank heard that DCLG cannot keep up and its guidance on treasury investments is overdue for a rewrite. The notion of specified and non-specified investments which was intended to steer treasurers towards more secure counterparties is by now, according to some, having quite the opposite effect when analysed from the portfolio level.
It’s personal
But the transition also has more personal implications for treasurers. The shift from banks, a focus on more diversified portfolios containing a greater range of assets, raises a big question about the adequacy of knowledge among treasurers.
Should local authorities be investing in staff and training and paying the kind of salaries typical in the private sector at a time when belts are being tightened? Is public sector experience inadequate for the challenge of the new era? These are serious question that will present a direct challenge to some standing treasurers but also food for thought for many councils contemplating treasury in these new times.
But perhaps it’s not just about the individuals in charge, perhaps its about structures. One way of accessing expertise is through concentration of resources. The GLA is doing that with a couple of London councils now outsourcing their treasury function to the authority. This arrangement, or others like it, may be the way forward for smaller authorities keen on pooling resources to access expertise and realise a bigger return for their more modest funds.
That, of course, presents a challenge to the existing stable of treasury advisers, and the roundtable heard some less than complimentary views on their performance. But that doesn’t mean advisers are redundant, nor that they are ignorant of events in the sector. If we are at a moment of change, advisers will undoubtedly reconsider their approach and service too.
All of this comes together to make this perhaps one of the most interesting times in treasury. Treasurers, and their councils, are faced with choosing a way forward. Crossroads can be uneasy moments on a journey, but potentially the most telling.
Gavin Hinks is editor of Room151.co.uk.
Photo: Tina Miguel.
