Social Security Fund IRR figures

Request 742844288 ​

Provide the detailed IRR figures showing all assumptions. I wish to check whether it includes- realistic exit value accounting for depreciation, capital reserves for future repairs, lease terms and tenant risk. I can then run a sensitivity analysis to see how IRR changes with different assumptions. 

Response 

Calculation of IRR  

The latest IRR estimates for the Local Infrastructure investment of the Social Security (Reserve) Fund (SSR) are included below.  

Key points underpinning the IRR calculation are as follows: ​
• The New Office Building will be rented by the Government of Jersey (GoJ) under a fixed contract for a 25 year period, with annual rental rises linked to Jersey inflation.  

• The opening annualised rental cost of the building will be £3,800,000. 

• The investment commenced in mid-2025, rental payments will be uplifted by inflation at the end of each calendar year.  

• Costs of £30,000, uplifted annually by inflation, have been assumed for investment monitoring and administration, but will only be spent if required.  

• The contract puts all obligations for repairs, maintenance and insurance on the GoJ as tenant, no further costs are expected or projected for SSR.  

• The Tenant is to reinstate the property at the end of the term to "Cat A" specification. 

• GoJ will retain an option to repurchase the land and building at the end of the 25 year arrangement for a sum equal to that required for the project IRR in totality to equal average RPI over the period +3% (the target return of the Fund), this option is projected to be exercised.  

• Inflation assumptions are modelled based on FPP capital assumptions. 

• The projected is expected to meet the target return of RPI+3% with very low risk, while generating a steady cash yield and low-price volatility, but also provide positive externalities for local residents through a centralised modern office.  

• The arrangement was based upon and closely mirrors the commercial terms of the build and leaseback arrangements offered by a third party.  

The cash flows applied to generate the RPI of RPI+3% are included in the attached table below (using most recent estimates):  ​
Freedom of Information response 742844288 - Attachment.pdf​

Commentary on governance and the approval process:  

The local infrastructure investment is not standalone and operates as part of a diversified portfolio. This asset is projected to generate steady cash yields, provide direct linkage to Jersey inflation, and stable valuations, complimenting the higher risk/return assets which continue to make up a significant proportion of the strategic allocation of the Fund.  Care has been taken to ensure diversification of the Fund is not compromised and the investment strategy sets a maximum of 5% of the Fund which may be invested in Jersey, except where a Jersey company is part of an established index. This is to ensure that the assets are diversified away from the effects of Jersey's economy.  

​To ensure independence, the draft investment terms were reviewed by the Treasury Advisory Panel, who provided an independent assessment of their suitability in relation to the investment objectives of the Social Security (Reserve) Fund, and recommended the updated investment strategy and inclusion of the asset.  The updated investment strategy including the infrastructure investments were then presented to and approved by the Treasury Minister and were subject to consultation with Minister for Social Security, both of whom supported the proposed investment. 

Finally, to ensure full transparency the proposed investment was included in the Budget 2025 and specifically debated and approved by the States Assembly.​