The Portfolio Holder for Finance and Value for Money presented a report which sought Members views on the invitation from Kent County Council (KCC) for District and Borough Councils to participate in the proposed Kent and Medway Investment Fund. The Fund would be established as a limited partnership with a Fund Manager and would provide an investment opportunity for all councils in the County as well as making a supply of funding available for development and regeneration projects across Kent and attracting development to the county. KCC had commissioned a feasibility study from CBRE consultants to develop proposals based on the Evergreen Fund set up in the North West. Each District was being asked to make a non-refundable contribution of £25,000 to the next phase of development of the proposed Fund with Medway contributing £50,000 and KCC up to £500,000. It was possible that other investors such as the Kent Pension Fund and the Homes and Communities Agency might wish to participate. This phase of the work would involve drawing up an investment strategy and terms of partnership. After this phase the Council would be invited to make an investment contribution to the Fund of £2m in cash or property for an investment period of 10 years. The consultants had indicated that the rate of return would depend upon the level of risk adopted as part of the investment strategy but could be as high as 10-12%, a far higher level of return than being earned from the Council’s current investments.

The report stressed that the primary purpose of the Fund was to enable regeneration as well as delivering financial returns. Local regeneration projects could benefit from the Fund, however there were no guarantees as the Fund Manager would ensure that funding was targeted at schemes which best met the Fund’s objectives, were fully deliverable and offered the best returns. It was unlikely that projects in areas not participating in the Scheme would receive funding.   Whilst it would be possible to join the Fund at a later stage this would involve an equalisation payment in order to compensate original partners for their higher rate of risk. Members were reminded that this proposal did not meet the criteria in the Council’s current investment strategy whereby investments were limited to those counterparties with a long term credit rating of at least AA- and that investments were in place for a maximum of one year. The Investment Strategy would therefore have to be amended should the Council wish to invest in the Fund.

The Portfolio Holder for Finance and Value for Money explained that this item had been considered by the Finance Advisory Group (FAG) on 2 November 2011. FAG had considered that the proposal was not wholly viable in that the Fund was ostensibly seeking to deliver both the best rate of return on investment and also to promote regeneration and that it was unlikely that both of these objectives could be delivered. FAG were not convinced that any of the regeneration funding would be used to support regeneration needs in Sevenoaks. FAG also considered that the Fund was a high risk investment, reflected by its lack of a credit rating, and would involve making an investment of £2m in cash or property and that the ownership of any assets put into the Fund would transfer to the Fund and would not be returned.  It also felt that the proposed level of investment would have to come out of the General Fund Reserve which would run contrary to the current Investment Strategy of low risk investment and that the Fund management fee was higher than the industry norm. FAG had also questioned the possible use of the KCC Pension Fund for the scheme.

The Cabinet agreed that it was unlikely that the district would gain regeneration funding from the Fund and that the rates of return could be much less than the figure stated. Cabinet considered that the Fund represented a high risk investment which would require both up-front investment to proceed to the next phase of the project and then tie up £2m for a 10 year period contrary to the Council’s approach to investment. It was felt that the Fund would be unlikely to be able to deliver the twin objectives of regeneration and the best rate of return on investment. The Cabinet was also extremely concerned about the possibility of the KCC Pension Fund investing in the scheme given that the Council did not wish to invest in the Kent and Medway Investment Fund and that Sevenoaks contributed to the KCC Pension Fund. The Leader of the Council stated that he would write to the Leader of KCC to express these strong concerns.        

            Resolved: That the Council should not participate in the Kent and Medway Investment Fund for the reasons stated at the meeting.