UK - Investec Asset Management, the liquidity managers with 115 local authority clients, today welcomed the proposal by the government allowing local authorities to invest in money market funds, believing this to be long overdue.
The change in law, proposed by Nick Raynsford, the government minister at the Department of Transport, Local Authorities and the Regions, will allow councils to invest in commercial money market funds, providing them with greater autonomy in managing their finances as well as greater levels of liquidity. Councils will only be allowed to invest in funds that have been awarded AAA ratings by credit agencies.
Paul Cammies, head of public sector client services, Investec Asset Management, said: As a leading manager of public sector cash since 1986, our own clients have indicated to us that they would certainly welcome this addition to their range of permitted investments. By ensuring that investment options are limited only to AAA rated funds, it will provide councils with a valuable way of enhancing the credit quality of their cash assets while providing an vital source of liquidity and also giving a boost to performance.
In these difficult times when best practice comes to the fore, we welcome the fact that local authorities will now have access to something which the private sector has already endorsed as the best solution to managing short term cash reserves.
The instant liquidity these funds provide is partly due to the fact they are pooled vehicles which allow institutions to pool their liquidity profile, facilitating optimal investment profiles not governed by cash flow constraints. Pooling investment funds also allows all institutions to benefit from economies of scale irrespective of individual size.
With interest rates as low as they currently are, it is crucial that local authorities are allowed access to this product ensuring top quality credit rating whilst improving rates of return. It is particularly important to councils with smaller amounts to invest and which, as a result, may not have access to wholesale rates of interest from their banks.
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