Neil Newton: Public sector cooperation and the PSDF

Neil Newton is an adviser to the Public Sector Deposit Fund. His letter below is a response to our recent post entitled Inter-authority exchange could save millions in brokerage fees

Like Richard Harbord I remember the old CIPFA Loans Bureau with affection, not just because of the hassle it took away, but because it was one of the few cooperative ventures in local government finance that in my experience made a difference. Surely the more important, wider point behind your debate on the efficacy of an inter authority exchange is about the rewards to be gained by local authority collective activity.

I was a section 151 officer for over thirty years in every type of local authority, with a three year sabbatical as a money broker, and stints as chair of the CIPFA Treasury Management Panel and the London Pension Fund Authority. I remain in despair at the inability of local authorities to exploit their financial clout. I can think of at least half a dozen areas where potential savings from cooperation would swamp the lower brokerage costs being discussed; but for the sake of this debate I will stick to the cash markets and the importance of the Public Sector Deposit Fund

As Richard ventured for cooperation to work someone has to take the initiative and organize. In the wake of the Icelandic banking disaster and the effects on local authority investment, the LGA did just that, and asked CCLA to set up the PSDF. The ownership structure of CCLA is such that all the benefits of the fund accrue to the public weal.

The fund is set up as a UK  regulated Money Market Fund (MMF) with all the ratings comforts that entails. Performance is good, consistently upper quartile with yields more than double that of the DMO, while costs are low, ten basis points, and will go lower as the fund grows.

More important than the attributes above, which you should expect, this is a fund set up by the public sector for the public sector in its widest sense. It is far more transparent than commercial alternatives with all the information a treasurer would require available on the web site, including extant counterparties. It has a far more conservative investment set than the Fitch rating would allow. The activities of the Fund are overseen by an Advisory Board of  experienced public sector luminaries. As the fund grows and authorities become comfortable with this cooperative activity, then such cooperation should become a worthy successor to the old Loans Bureau and expand beyond traditional MMF activity, including perhaps marrying public sector counterparties that triggered this exchange…

The fund will also take deposits as low as £25000, enabling Parish and Town Councils, as well as any other public sector body, to access wholesale money markets and it is being widely used by such organisations.

MMFs are not used by all authorities all of the time, but they are used by nearly all authorities for some of the time. By using the fund, authorities can achieve very competitive yields, lower costs, reduce time spent on day-to-day cash management, and have on tap an experienced treasury team. The big boys who are confident in their ability to manage their own affairs in isolation, might reflect that in using the fund as one of their MMFs, they will be bestowing some of their advantages to their less fortunate public sector brethren.

So why are not all local authorities account holders even if they are not currently using MMFs? It is your fund. Ignore the vested interests and the siren calls of those who have much to gain from the status quo.

CCLA launched The Public Sector Deposit Fund in 2011
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The Local Authority Treasurers’ Investment Forum September 25th, 2012, London Stock Exchange
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