A Local Government Association-backed bespoke investment fund for councils is set for its long-awaited launch, after securing sufficient start-up funding.
Some 30 public authorities, the majority of which are councils, have guaranteed £100m worth of ‘seed funding’ for the CCLA-managed fund, which is AAA-rated, with City Of London Corporation, Liverpool City Council and Test Valley BC among the initial investors.
The seed funding falls £50m of the original £150m managers had targeted, but CCLA chief executive Michael Quicke insisted this was not a problem.
“We have a strong level of interest in the fund and we are confident it will grow quickly after it has launched,” Mr Quicke told LGC, explaining that, after the Icelandic banking crisis, demand for money market funds, which offer conservative returns but are regarded as very low risk, are in demand.
Mr Quicke added: “There is only one other UK-domiciled money market fund that is regulated by the Financial Services Authority and these were seen as very important qualities [to potential public sector investors].”
CCLA said that the fund still hopes to fulfil the original targets, set out by the LGA in September 2009, of becoming a multi-billion pound fund, although it is unclear how long this will take.
The City of London Corporation has guaranteed the biggest initial investment, some £10m, to the Public Sector Deposit Fund, which officially launches on Wednesday 25 May.
The fund offers a return of 82 basis points before management fees are added. These vary according to whether or not a depositor is a seed funder and the size of their deposit.
LGA vice chairman Richard Kemp (Lib Dem), whose own council Liverpool has pledged £2m of seed funding, said the venture was “in effect, a mutual of councils”.
“They are getting good financial returns by using the muscle of the entire sector” Cllr Kemp added, “I see no reason why all councils will not keep some of their money in this fund.”
CCLA expects to be able to announce the names of its advisory board within the coming weeks, with senior local government figures expected to take up places.
Test Valley leader Ian Carr (Con), who’s authority has pledged £1m, said: “We are always on the look out for opportunities to invest our money in a safe and prudent way for the residents of our borough, and this new Public Sector Deposit Fund provides the perfect vehicle to do just that. We are delighted to be investing as a seed funder and look forward to a prosperous relationship with CCLA.”