I am writing to you as Chair of LAMIT, The Local Authorities Mutual Investment Trust, a fund sponsor that is owned by the four Local Government Associations of the United Kingdom. It works closely with the Local Authority sector and oversees on their behalf three specialist investment funds, each designed and managed to achieve specific investment objectives. The first of the three funds is The Local Authority’s Property Fund (LAPF), a specialist fund for long term investors which invests only in commercial property in the UK. It currently has a value of £1.2bn, all of which has been subscribed by local authority investors. There is also the £160m Diversified Income Fund (DIF), which provides income and capital growth from a risk controlled portfolio and the Public Sector Deposit Fund (PSDF), an ‘AAA’ rated fund which provides both a safe haven for cash and, by pooling the investments of investors across the sector, a better rate of return. This currently has about £850m invested, again largely on behalf of local authorities. In total we provide services for some 225 of the approximately 500 principal councils in the UK.
PCA members of longevity might be interested to note that the PSDF was set up to provide Local Authorities with a low risk, UK-domiciled home for cash deposits following the PCA investigation into the investment by Councils with Icelandic banks, an issue on which I gave evidence on behalf of the LGA.
In this context, ‘local authority’ means a broad range of local authorities. These include harbour boards, national parks, combined authorities, police and fire authorities, cremation boards and others. Importantly CCLA reaches out to serve the whole of local government, irrespective of their size.
These funds are managed by CCLA, a specialist fund manager which manages £9.6bn of assets on behalf of not-for-profit organisations in the Church, Charity and Local Authority sectors. Hence the name. Unusually, although it is a City of London based company, its shareholders are representatives of the three non-profit-making sectors, which between them control the great majority of the share capital. CCLA is a profit making company but not a profit maximising company, in effect it has some of the characteristics of a cooperative, although that is not its legal form. Having no external shareholders gives CCLA a stability of strategy and purpose, allowing them to take a long-term view consistent with the requirements of local authorities. In addition, LAMIT’s shareholding in CCLA generates a substantial dividend which is applied to reduce the costs of managing the money of its local authority clients.
The advantage of having a specialist fund manager in day-to-day control of these funds is that it gives local authority investors three important benefits: those of scale, expert management and a very high degree of transparency. The substantial size of the assets means that the funds can be managed cost-effectively with the benefits passed back to investors. The expertise brings expert asset selection but also risk control through careful and prudent diversification of the assets. The position of the funds is further strengthened by the ability to call upon the knowledge and experience of the LAMIT Board and access those of the LGA and professional bodies such as CIPFA, which support local government generally.
LAMIT recognises that there are two main reasons why a local authority may choose to invest in the commercial property market. The first of these is because it wants to make things happen in or around their area in terms of economic development and physical regeneration.
The second main reason is because the Authority wants to achieve a higher rate of return for its medium to long-term financial holdings, which would enable it to reduce the need to cut services to its residents. Of course, on some occasions the Council might be seeking to achieve both of the objectives at the same time.
Both these types of investment are good and sensible things to do but need to be undertaken alongside other actions which control the key variables of risks and costs. Locally councils have a good knowledge of their patch but do not necessarily have the same level of knowledge beyond their borders or indeed of what is happening in the property sector more widely. This lack of depth can turn an action made with all good intentions into one which proves to be a drag rather than a support to local resources.
We want to continue to develop our work with the sector and, had Covid-19 not struck, would by now have commenced discussions with the leadership of the four LGA on what other ways we might harness our expertise to support their work.
We would be pleased to provide further information about the work we do with and for local authorities and their partners either in writing or in (remote) person.