Editor’s blog: austerity is managing the future of treasury

The core concerns of treasury officers are now becoming clear after two regional Room151 Think Tanks in quick succession. And they are some way from where they once were.

It seems a distant memory now but it was only 2014 when the room151 Think Tank discussion was preoccupied with the possibility of an imminent rise in interest rates and whether treasury officers were prepared.

As we all know that didn’t happen. Far from it, interest rates remained where they were, a rise receding into the distant future as economic concerns forced it off the agenda. Meanwhile, the situation for treasury officers has changed dramatically. And perhaps they are not all that comfortable.

Our first Think Tank this year revealed a concern with the skills of treasury officers. Our second suggests once again expertise in treasury teams is a pressing concern for slightly different reasons – reputation.

From our the Think Tank in London last week it emerged that a fear of damage to reputations was a core concern when making investment decisions.

It is undeniable that this is a powerful hang up from the Iceland ferago, but you don’t have to go too far back in time to find headlines, TV investigations and select committee hearings devoted to LOBO loans. Those reports would have made life very uncomfortable for the treasury officers involved, rightly or wrongly.

Harsh words were also published for the GLA’s decision to put money into residential mortgage backed securities. Which treasury officer wants to find their investment decisions suddenly splashed all over the papers, scrutinised by MPs or pored over by TV investigative journalists?

None I suspect, which is why it emerged that reputation issues may in fact be influencing decision making – and not just at the margins.

Reputations

We’re not just talking about the way protecting reputations may be deterring high-risk investments. Treasury officers revealed it might also prevent perfectly sound, low-risk investments if they happened to be associated with a brand that had received less than glowing praise in the press.

That’s a sad indictment. It may mean lost revenues for the public purse but it also points to a reduced number of investment opportunities at a time when EU regulation has made simply placing money with banks a risky business.

The fact is that treasury officers admit they are under pressure not just to keep local authority money safe, but to get a better return than might have been earned in the past. Pressure on budgets means officers want the money to work harder. But the demand is also for “zero risk” and any investment manager will tell you that risk and return come as a pair.

One officer told the Think Tank that he had successfully leveraged the need for a better performance to argue for more staff with greater analytical expertise.

Others meanwhile said they still needed more skills and greater resources to handle the investment challenge.

The Think Tank heard that external asset managers had skills on offer that could be used but that prompted an observation that even if expertise could be found outside treasury teams, someone inside a local authority would still need to understand the risks involved. Quite so and quite right.

Stressful

That brings us to some sober conclusions. Up and down the country treasury managers are under pressure to write up better returns. For many that will be a new and stressful position to be in. It will test their stamina and their skills.

The new environment is asking big questions about what kind of treasury departments will be needed for the future. That’s a question about analytical skills and a knowledge of risk. Fears about reputation point to those faculties being combined with strong political judgement.

One wonders also how many treasury departments there will be five or ten years from now. The consolidation of local government pension schemes into a handful of pools may offers at least one model for treasury. The GLA’s recent news that it is taking on other London boroughs as treasury clients offers another direction in which treasury departments might move.

Two weeks ago Room151 wrote about the crossroads treasury finds itself at, a moment of transition. This second Think Tank has only reinforced that view. Treasurers are managing austerity, but clearly the emerging issue is the future model for treasury management. In short, austerity is beginning to manage the future of treasury.