John Murray Brown reports that John Clancy, the new leader of Birmingham city council, wants to anchor the £11bn West Midlands local government pension fund in Birmingham and the surrounding region, creating a “West Midlands sovereign wealth fund” to be invested in new homes and infrastructure.
He also raised the prospect of Birmingham turning to the capital markets, selling Brummie Bonds (see The Stirrer) to fund projects and has discussed these ideas with Greg Clark, the communities and local government minister.
Mr Clancy explained that the first step is to change the rules on how local government pension funds are invested, to allow trustees to hold regional and local investment bonds, not just equities and government securities, as at present: “The current portfolio allocated to foreign shares could then be invested in local bonds, issued by regional banks, local councils, the new combined authorities and city-region authorities”.
Via the Brummie aggregator, we learn that the proposals have been welcomed by business leaders. Greater Birmingham Chambers of Commerce said they could tap into a ‘potentially great untapped asset.’
David Bailey, professor of industrial strategy at Aston Business School, said: “The ideas on using local government pension funds to invest locally are well worth exploring and long overdue in Birmingham. Birmingham really needs to build more affordable houses, and there is the potential for pension funds to deliver good returns to their members. This could also trigger investment in the city at a time when the council itself is under huge financial pressure”.
“The Greater Manchester Pension Fund and the city council, for example, set up a £30m joint venture in 2014 that is building 240 homes for rent.”
Birmingham’s financial difficulties led previous administrations to sell council-owned property, including the National Exhibition Centre. Mr Clancy believes that rather than selling assets, the council and city should to use securitisation of the assets to promote revenue generation: “That’s a much better way to go”.