Room151 Think Tank tackles resources and reputations

Staff cuts are hampering efforts by council treasury departments to diversify investments, according to experts at a Room151 round table.

Attendees at a Room151 Treasury Think Tank event in London heard that finance teams are struggling to analyse risks associated with new products due to skills shortages.

Reductions in local authority budgets are leaving some departments finding it difficult to cope with new demands to find higher returns from treasury investments, the session heard.

Bridget Uku, group manager treasury and investments, at London Borough of Ealing, said: “We all need more resources but it’s difficult to get an allocation for additional resources given the pressures local authorities are under.

“Since the Icelandic bank debacle we all are aware that you are responsible for your own decisions so you have to stay on top of things rather than just call an adviser and get the answer.

“You have to construct your own risk appetite and look at all the issues. But there is this pressure to stay on top of things, but with so many conflicting priorities that can be a tall order.”

Andrew Lovegrove, head of corporate financial services at Warwickshire County Council, told the Think Tank,  that he had successfully argued for more resources for his team after coming under pressure to increase returns.

He said: “There was pressure to come off the bottom in terms of the return. I was able to put an argument that there is a relationship between the staff resources we have, our skill set and our ability to seek a better return.

“I was lucky that I was at the right time to put that forward.”

Other members of the panel suggested collaborating with other councils or asset managers in order to decide on investment strategies.

Luke Webster, chief investment officer at the Greater London Authority, said: “We have also felt the resource issue and we have solved it by constructing a very large shared service.

“When I marketed the idea it was not about staff savings but about improved outcomes.

“We captured the staffing resources of each authority and consolidated and built a much bigger team.

“It meant that, rather than having one and a half generalists each, we could create a differentiated team of senior managers, trainees, middle experienced operational managers and set up career progression, and succession planning, which allows us to do things we might not have been able to do otherwise.”

Amir Mota, vice president of global liquidity at J.P. Morgan Asset Management, suggested

that councils should seek external help when setting their strategies.

He said: “When you hear the industry talking about not having resources and not having expertise, it’s worth bearing in mind many of you have relationships with asset managers today.

“And those asset managers have solutions that can give you access to corporate credit and other instruments.

“In many ways, as investors in MMFs for the past 10 years, there is not a massive difference in jumping from MMFs to ultra-short duration bond funds.

“You are outsourcing your cash management to a fiduciary. They will have a fiduciary responsibility to manage your liquidity whether through a money market fund or an ultra-short bond duration fund.”

Webster agreed, but said that councils would still need to employ someone who properly understands the risk with any investment solution adopted.

He said: “If you discharge your fiduciary duties properly you need to have some in-house resource who can explain to members and senior officers.

“That could be a section 151 officer, but it is unrealistic for every section 151 officer to be an investment specialist. So, they have to be able to recruit those sorts of people.”

The panel also discussed how worries about reputational damage affected their investment decision making.

Uku said: “LOBOs were seen as a rational common sense and affordable way to borrow, but there is a lot of scrutiny of that now.

“People don’t want to go into something for which they don’t fully understand the risks especially when market conditions change.
Something that can look like a no brainer today can turn out to be not so good in five years’ time.
“It is not just understanding the effect today, but also how establishing how it will impact your portfolio for the long term as well.”

Webster agreed that political awareness was often a factor in making smaller investment decisions.

He said: “There are occasional times when I have winced and looked at an investment that is attractive but I know the name is going to attract excitement among members or press.

“It becomes a problem if those sorts of issues are occurring on a very regular basis and by not taking them you can demonstrate an impact on yield.

“That generates a different discussion.”

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Photos Tina Miguel.