Total treasury assets under management (AUM) are ‘somewhat’ or ‘significantly’ smaller at 44% of councils this year compared to last, according to Room151 and CCLA’s annual treasury and finance survey.
Almost a third (32.2%) of the 152 survey respondents said their council’s AUM was ‘somewhat’ smaller, with 11.8% saying it was ‘significantly’ smaller. Less than 1% said their AUM was ‘significantly greater’, with 8.5% noting it was ‘somewhat greater’.
The sector is now seeing the “downward trend” in treasury investments that has been predicted to happen over the past few years, according to Kelly Watson, head of local government relationships at CCLA Investment Management, who announced the results of the survey at Room151’s Local Authority Treasurers’ Investment Forum and FDs’ Summit.
“About 45% of those that responded have had cash balances that stayed broadly the same, but we had quite a big chunk of cash that has started to decrease,” she said.
“We are starting to see that there are some factors around that. We know that given where borrowing rates are at the moment, there could be some more internal borrowing, which might reduce some of that cash. But there are other factors. Overall, we are starting to see a trend downwards in the level of cash and investments.”
The range of total treasury investments among respondents is extremely broad, with the majority ranging in size from £26m to £250m [32% between £26m-£50m, 22% between £51m-£100m, and 20% between £101m-£250m].
According to Watson, “some of that just shows the scale and the breadth of types of organisations” that responded. There were some outliers, with 14% having AUM to a value under £25m and 1.3% over £1bn.
The survey also revealed that fewer councils expected the value of their treasury assets under management to fall over the next 12 months, compared to this time last year.
Some 40% of respondents expected their AUM to stay roughly the same, with 49% expecting investments to ‘fall somewhat’ and 6.5% expecting a ‘substantial’ fall. On the other side of that, just 4% expected AUM to ‘somewhat’ rise, with no respondents expecting a significant increase.
This compared to the 2023 survey, where 56.7% of respondents expected the value of their treasury assets under management to ‘fall somewhat’, 5.5% to ‘fall substantially’, while a third (33.1%) expected the value to ‘stay roughly the same’. 4.7% expected something of a rise, but as with this year no respondents expected a significant increase.
“There were more respondents that felt that cash balances might actually stay the same this year,” observed Watson. “It was around 55% that said they’re expecting them to continue to fall. But there was quite a big cohort that said that their balances would remain the same. I’m interested already in what will happen from here.”
Investment allocations
Room151 and CCLA’s treasury and finance survey also sought to discover in which asset classes/ interest yielding accounts councils are most likely to increase and decrease investment allocations over the next year.
Looking at increases in allocations, money market funds came out top with 44.7% of respondents saying this was their most likely source to go to. Some 29% said other local authorities were there most likely option, with 26.3% looking at bank deposit accounts. Survey respondents were able to select up to three options.
The DMADF (11%), gilts/T-bills (6.5%), property or property funds (6%), corporate bonds/corporate bond funds (5.3%), and building society deposit accounts (5.3%) also received some interest, with 4% looking at other options. Multi-asset funds (0.7%) and equities or equity funds (0%) received very little or no votes.
However, 35% of respondents said they would not be increasing allocations to any type of investment this year.
Money market funds was also the top option when respondents were asked where they were most likely to decrease allocations, at 24%. This was closely followed by bank deposit accounts (21.7%) and other local authorities (21%) – meaning the top three was also the same but the figures were much closer than those looking at expected increases in allocations.
Other options were the DMADF (11.8% said this is where they would most likely decrease investment allocations); property or property funds (6.6%); corporate bonds or corporate bond funds (5.3%); multi-asset funds (4.6%); bank society deposit accounts (3.3%); equities or equity funds (3.3%); and gilts/T-bills (1.3%).
34% of respondents said they would not be decreasing allocations to any type of investment this year.
Commenting on these results, Watson noted that “the majority of the focus is around cash; short term investments, fixed term investments, local to local investments, lending and money market funds. People are saying that what they would look to focus on is generally around cash-type investments, so a lot of the focus does seem to be on that treasury management, the cash, the very much shorter end of the portfolio.
“There were some that might look at longer term investments, and a very small portion of respondents possibly looking to pull out of some long-term investments.”
Survey respondents were also given the statement that ‘prudent treasury management dictates that sources of borrowing should be diversified, as well as types of investment’ to assess. The majority (54.6%) agreed with the statement (39.5% ‘somewhat’ agreed, with 15.1% ‘totally’ agreeing).
Some 23% of respondents said they ‘somewhat’ disagreed, with just 3.3% ‘totally’ disagreeing. 19% neither agreed or disagreed.
The treasury management section of the survey also assessed the inter-authority lending market, with more than 75% of respondents indicating that “reputational risks” have influenced their lending to local authorities facing financial difficulties. A detailed report on those results can be found here.
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