Survey results tell a story of treasurers slowly adjusting asset allocation, low levels of return and the possibility of rising interest rates
Are treasury agents adjusting their asset allocation in response to current economic conditions? It seems they may, tentatively, according to a poll.
The Room151 / CCLA Treasury Investment and Current Affairs survey reveals notable adjustments in their asset allocation.
Presented by John Kelly, director of client investments at CCLA, at the Room151 Local Authority Treasurers’ Investment Forum (LATIF), the survey shows that 14% of executives increase “somewhat” allocations to real estate funds (14%) and 15% to multi-asset funds. And as if to underline their burgeoning popularity, few treasurers have said they will cut allocations to these areas.
Meanwhile, allocations to other local authorities are expected to increase somewhat to 23% of councils, although this is offset by 18% of treasurers saying they will reduce their allocations to councils slightly.
Money market funds and bank deposit allowances are also on the rise, but these two are countered by similar numbers claiming they would cut their investments in these categories.
With no notable changes in thinking about investments revealed by the sector, it seems treasurers are still making their way into the economy. “The answer is that portfolios change, but they change at a relatively slow rate,” Kelly said.
October 6, 2021
Room151 & Arlingclose host a special program on the new Prudential and Treasury Codes
Local government finance officers register here.
Treasury officials may be reluctant to radically reorient their funds, as it is difficult to see where the growth could come from after a period of modest returns to say the least. Only about a quarter (27%) of treasurers earned 1% or more on their funds. For everyone else, incomes were low. About 23% only made 0.25% or less, while 24% made it up to 0.5%. In total, 75% of treasurers revealed that their performance was below 1%.
The numbers offer treasurers a lot to think about when considering their next move. “It’s fair to say,” said Kelly, “that in the industry as a whole, few have managed to match an inflation rate that is currently 3%, on its way to 4% before the end of the year. the year.
“Most of the funds lost real value during the year. It is a challenge that we must reflect on.
The survey results may speak of a problem with the general approach to cash investing. According to Luke Webster, chief investment officer at the Greater London Authority, the shared view of risk among local authorities may not help returns.
“I think everyone will agree in the context of cash management that you never want to put capital at significant risk. So you don’t want to invest in items that are likely to default or in a portfolio of items for which there is a high probability of net loss.
“But that doesn’t mean you should be obsessed with every investment preserving capital value at all times on an accounting basis.”
Webster said in total local authorities have around £ 30bn in reserves which “just don’t budge”. Investing in a ‘more reasonable way’ could free up hundreds of millions of pounds for additional spending on essential services.
Treasurers were pessimistic about the value of cash assets under management. More than half of those polled, 51%, think they will “go down somewhat” while almost 10% think they will go down “substantially”. Almost a third, 31%, believe they will stay the same while only around 8% see values increase to any degree.
Inflation is rising to such an extent that there is speculation that the Bank of England will raise interest rates. About 75% of treasurers believe it will stay at 2% or less, while about a fifth believe it will increase between 2% and 5%. More difficult times ahead for treasurers.
Bank of England. Photo: Bank of England, Flickr
FREE monthly newsletters
Subscribe to Room151 newsletters
Room151 Linkedin Community
Monthly online cash briefing
Register here with a .gov.uk email address
Room 151 Webinars
Visit the Room151 channel