Agenda item

The Commission considered a report of the Director of Corporate Resources, the purpose of which was to set out the performance of the Investing in Leicestershire Programme (IILP) in 2024-25.  A copy of the report marked ‘Agenda Item 10’ is filed with these minutes.

Arising from discussion, the following points were made:

(i)               Whilst the report suggested strong financial returns had been achieved, some Members argued that this was not the case and that the performance of some of the IILP investments had been poor with the overall position only having been boosted by the revaluation of the rural estate.  The Director agreed that across the portfolio there had been mixed performance during 2024/25.  He suggested, however, that this would always be the case with such a varied portfolio. 

(ii)             A Member challenged the comparisons being made to demonstrate performance of the fund.  They suggested that comparing returns against holding cash was not appropriate and not a fair comparison of risk verses return.  The Director explained that the comparison stemmed from when the Council first chose to invest in non-direct property investments.  At that time the Council’s cash holdings were producing very poor returns below the rate of inflation.  The non direct property investments had been undertaken as an alternative, to boost the Council’s income compared to its traditional cash holdings.

(iii)           A Member commented that interest rates on cash holdings were now much better and would likely outperform the return provided by the IILP.  It was noted that the percentage return on income over the whole fund might appear low.  However, nearly half (47%) of the fund related to rural land which it was known did not provide a high rate of revenue return.  The other portion was held in development land which would provide a much higher rate of return in the long term through capita growth.  At present this had not been seen as many sites were still in the development phase or not yet fully let.  Members noted that the income returns if the in-development and rural land were excluded would be approximately 5.4% which was higher than the average return on cash holdings. The Council also benefited separately from capital returns which continued to perform well (6.6%).

(iv)           Whilst concerns about performance had been raised in previous years, a Member emphasised that the IILP delivered wider benefits than revenue and capital returns.  It helped bring forward land for development and much needed housing across Leicestershire.  It also invested in the development of local industrial units to support local businesses, create jobs which benefited the local economy.

(v)             The Council held £231.8m in direct property assets.  In addition, it held £61m in non-direct property investments which had been made to spread risk through diversification. A Member commented, however, that as a significant proportion of those investments were in pooled property funds and therefore subject to the same liquidity risks as direct property assets, this was not true diversification.  They suggested that other types of investment which did not share the same risks could be made which would likely perform better, for example, investments in equities which over the long term outperformed all types of other investment.  The Director confirmed that a wider group of diversifiers were being considered and that options would be presented to the IILP Board shortly which would include an option to invest in equities. 

(vi)           Some members expressed concern at proposals to potentially invest in equities, suggesting this was too high a risk given the Council was managing council taxpayer’s money and so had a duty to ensure a higher degree of security compared to private companies and investors. 

(vii)          It was noted with some disappointment that two of the property funds invested in had been wound up early which had resulted in some capital losses to the Council.  The Director agreed that this had been unfortunate and not a decision the Council would have chosen to take.  Members noted that there was always a degree of risk with these types of investments.  As they were managed on behalf of a large number of investors, the Council did not have overall say in the timing of the fund closures.  In these cases, most investors wished to redeem their investments which had resulted in a forced liquidation.

(viii)        Members raised concerns regarding past management of the rural estate and delays in carrying out revaluations and rent reviews.  It was questioned if this had resulted in higher than average rent increases during the 2024/25 period.  Members noted that all rural tenancy agreements included provisions for carrying out rent reviews and that these were based on current market rents. Two sets of reviews had been carried out in Autumn 2024 and Spring of 2025. The Director advised that the increases on average were not substantial, but where tenants had clear difficulties the increase was phased in over an agreed period of time.  Members commented that as custodians of the rural estate this should be managed more efficiently going forward as sudden increases in rent did not support farmers and delayed the receipt of much need income to the Council. 

RESOLVED:

(a)  That the performance of the Investing in Leicestershire Programme (IILP) in 2024-25 be noted;

(b)  That the Director be requested to provide, at a future meeting, a more detailed overview of the IILP, the investments made, the level of risk and returns achieved and proposals for its future direction.