Property fund swells as treasurers look beyond deposits

A property fund designed for local authority treasurers has accumulated more than £250m, signalling growing increasing interest in alternative investments among local authorities.
The CCLA Local Authorities’ Property Fund (LAPF) reached the quarter billion mark at the end of October, up from £217m at the end of September and just £95m this time last year.
CCLA chief executive Michael Quicke told Room151 that the growth reflected an appreciation that interest rates are likely to stay low for some time.
He said: “There are significant advantages in accessing funds such as property for a small proportion of funds.
“The blended rate from investing even a small proportion of your portfolio invested in property can bring your overall average yield up significantly.”
In the past year, the fund has paid out 11.9p in dividends per unit, a dividend yield on the net asset value of 4.55%
In addition, the net asset value per unit of the fund has risen 10% in the past year.
David Green, client director at treasury adviser Arlingclose said that the increased interest in alternative investments had been growing slowly over the past year.
He said: “Statements from the Bank of England have reinforced the idea that rates are not going to go up quickly, and if they do then they won’t go up by very much. If you have the cash to invest in property then it can reap much bigger rewards.”
In addition, cuts in central government funding are leading to council executives looking for bigger returns from treasury investments, he said.
Lauren Sewell, local authority dealer at broking firm King and Shaxson said that the rise in interest in property investment had been mirrored in the covered bonds market.
She said: “There hasn’t necessarily been a surge in dealing, but more and more authorities have been asking us about covered bonds in the past couple of months, and we are going out to explain them to a lot more people.
“More and more authorities are looking away from fixed deposits and diversifying into alternative asset classes.”
Quicke said there was no practical limit on how big the LAPF could get.
He said: “We are finding no problem in acquiring properties to soak up the money being invested.
“Life gets easier as the fund gets bigger – it gives us the capacity to acquire bigger properties.”
In April, CCLA reported figures from real estate analysis firm IPD showing that the fund had jointly outperformed all of its peers over the past five years.
The Department for Communities and Local Government is set to release half-year figures on local authority investments during the next month.
An electronic survey carried out during September’s Local Authority Treasurers’ Investment Forum in London found that only 5% of delegates were planning to significantly increase their allocations to UK banks in the coming year, compared to 35% planning to significantly reduce them.