LOCAL
GOVERNMENT
INVESTMENT
POOL
State Treasurer
|
WASHINGTON STATE LOCAL GOVERNMENT INVESTMENT POOL |
Michael J. Murphy State Treasurer |
| First Quarter 1999 Update | Volume 3, Number 1 |
|
Fundamental economic strength accompanied by low inflation and strong employment continue to dominate the domestic economy. We are still waiting to see the expected slowdown with GDP falling to 2% or 3% from the torrid 5.6% reported for fourth quarter 1998. The longer the economy remains strong, the greater the risk for higher bond yields, especially with the recent increase in commodity prices, for example, oil. After reducing the federal funds rate three times during the fourth quarter of 1998, the Federal Reserve has remained neutral, leaving rates unchanged since their December meeting. In addition, they have not announced a change in bias reaffirming their neutral “wait and see” stance. As of April 26, the targeted federal funds rate continues to be 4.75%. The market reflected the above by moving into a trading range mentality and with a steepening of the yield curve, as shown in the Historical Yield Curve graph. As the yield curve steepened, the Dow Jones Industrial Average continued to rally closing above 10,000 for the first time on 3/29/99 and continuing the rally throughout April, closing at 10,718 on April 26. Historically, a collateral squeeze occurs each year during April and May as a result of Treasury pay-downs and surging tax-related cash flows. The Treasury pay-downs reduce collateral available for repo and increase the cash in the system. This cash, combined with the tax-related cash flows, causes a supply/demand imbalance between cash and collateral. The result of this is that repo rates are lower relative to the targeted Fed Funds rate than is typical during the rest of the year. Indeed, repo rates during the weeks of April 12 and 19 were unusually low, reflecting the onset of the collateral squeeze pressure. The net return on the LGIP during the first quarter of 1999 ranged from 4.83% to 4.97%. Due to the anticipated collateral squeeze, the maturity structure of the LGIP shows a concentration of funds past the April/May time period. However, the general strategy remains a barbelled maturity structure. This strategy allows the LGIP to take advantage of any steepness in the yield curve in the year area, while at the same time maintaining significant liquidity for its participants.
The statewide custody contract bill (SHB 1183) was delivered to Governor Locke for his signature on April 25, 1999. Once the Governor signs the bill, it would become law, effective September 1, 1999. The bill passed unanimously in both the House (97-0) and the Senate (49-0).
A brief history of the Y2K issue was given and committee members discussed the draft “Year 2000 Readiness Disclosure” letter to be mailed out to LGIP participants in their March 1999 monthly statements. A letter will be issued from the Attorney General’s Office stating that OST is Y2K certified. When the letter is finalized, it will be sent to all LGIP participants. A brief discussion of the LGIP returns for the last quarter was given. The net return of the LGIP versus the Donoghue benchmark has been very good. Due to the annual collateral squeeze and incoming property taxes during April and May, many maturities have been directed into June. Currently, the average life of the LGIP is 65 days. Committee members were asked for input regarding their Y2K concerns. It was stated that there is great potential for some entities to experience cash flow problems associated with Y2K. Also, smaller jurisdictions will have problems and money has been allocated to help these entities address the problem. Committee members agreed that the LGIP is a “safe haven” for funds. A brief update was given on the budget for Fiscal Year 1999. The estimated and actual expenses are right on target, however, the fees collected are considerably higher than anticipated. As a result, the OST expects to surpass their LGIP rebate estimate by over $185,000. An update was given on the statewide custody contract legislation. Discussion followed regarding the two similar versions of the bill, Senate Bill 5248 and Substitute House Bill 1183, and their current status in the legislative process. An update was given on the Public Finance track of classes that the LGIP is organizing for the 1999 WFOA conference in Yakima on September 21-24, 1999. Speakers have been selected for all classes except the Global Economy class. The revised guidelines established by the State Investment Board for investing in commercial paper (CP) were reviewed by committee members. Committee members were asked if they were satisfied with the notification process regarding this new policy. It was the consensus of the committee that a separate letter signed by Treasurer Murphy will be mailed to all LGIP participants drawing their attention to the new policy. LGIP committee members Mary Dodge, Stan Finkelstein, Rick Patrick, and Hugh Simpson were reappointed to the committee for three-year terms. |
| The Fax of the Matter |
re you getting the most out of all the LGIP
has to offer? Did you know you can receive your monthly LGIP statement via fax?
The fax option is perhaps the most efficient and timely way to receive monthly LGIP statements. Faxed statements (and associated enclosures) are sent out starting at 5:00 p.m. on the last working day of the month—that means they are waiting for you bright and early the following morning! We have been faxing monthly LGIP statements for a year now. About 60% of the LGIP participants receive their statements via fax, and we continue to receive positive feedback from those participants.
If you are interested in receiving your monthly LGIP statement via fax, please contact Lisa Hennessy at 1-800-331-3284.
| LGIP Holiday Schedule for 1999 |
he Local Government Investment Pool will be
closed on the following days:
| Monday | May 31 | Memorial Day | ||
| Monday | July 5 | Independence Day | ||
| Monday | September 6 | Labor Day | ||
| Tuesday | October 12 | Columbus Day | ||
| Thursday | November 11 | Veteran’s Day | ||
| Thursday/Friday | November 25 & 26 | Thanksgiving | ||
| Friday | December 24 | Christmas Day | ||
| Friday | December 31 | New Year’s Day |
| IT’S OFFICIAL! State Investment Board Commercial Paper Policy Change |
he Washington State Investment Board (SIB)
has changed its policy regarding the purchase of commercial paper. On
February 18, 1999, the SIB met and approved these changes, effective immediately.
Why should you care? Pursuant to RCW 39.59.020(4) local governments can invest in “…any investments authorized by law for the treasurer of the State of Washington…” and the state treasurer is authorized by law to invest in commercial paper by RCW 43.84.080(7), but only to the extent consistent with the policy of the SIB.
The policy guidelines, with respect to investment in commercial paper, for entities with funds under management of less than ten billion dollars, are as follows:
| WFOA 1999 Public Finance Track |
he Washington Finance Officers Association
(WFOA) is having its annual conference in Yakima, Washington, from
September 21-24. The Office of the State Treasurer is coordinating the Public
Finance track for the conference. In addition to the other educational opportunities
at the conference, below are the classes slated for the Public Finance Track:
| Wednesday, September 22 | Thursday, September 23 | |
| Local Government Investment Pool | Global Economy | |
| Basics of Investing | Investment Analysis | |
| Eligible & Appropriate Investments | Investment Analysis (part 2) | |
| Custody Issues | Investment Products | |
| Active Portfolio Management | Lease Option Capital Asset Lending | |
| Cash Management | Debt Policies | |
| Cash Management (part 2) | Debt Issuance |
| LGIP Marketing & Education Effort |
taff from the State Treasurer’s Office
will be traveling to various conferences and meetings in the coming months in order to
educate LGIP participants, and potential participants, on this beneficial investment
alternative. We have provided a schedule below and hope to see you at these
events. Please introduce yourself!
| WA Public Utility District Association (WPUDA) Financial Officers meeting | May 5, 1999 | |
| WA Association of County Treasurers (WSACT) | June 16-18, 1999 | |
| WA Public Ports Association (WPPA) Financial Officers meeting | June 16, 1999 | |
| Association of Washington Cities annual conference (AWC) | June 22-25, 1999 | |
| NW Municipal Clerks & Treasurers Institute | July 13, 1999 | |
| WA Finance Officers Association (WFOA) | September 22-24, 1999 |
| LGIP Maturity Structure
|
LGIP Cumulative Maturity Structure
|
|
| |
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| LGIP Participation
|
Average Daily Balance History
|
|
LGIP Portfolio Holdings
Cost Percentage
of PortfolioRepurchase Agreements $ 964,962,000 29.05% U.S. Treasury Securities 183,824,463 5.53% U.S. Agency Bullets 119,975,559 3.61% U.S. Agency Generic Floaters ------ 0.00% U.S. Agency Discount Notes 1,700,774,486 51.21% Certificates of Deposit 24,200,000 0.71% Banker’s Acceptances ------ 0.00% Commercial Paper 328,409,929 9.89% Reverse Repos ------ 0.00% *Total Excluding Security Lending 3,322,146,437 100.00%
Security Lending Holdings
Cost Repurchase Agreements $ ------ Banker’ Acceptances ------ Commercial Paper ------ Bonds Borrowed ------ Total Security Lending $ ------
Total All Assets
$ 3,322,146,437 Policy Limitations
The policy limitations include investment of cash collateral by a securities lending agent calculated as percentages of the portfolio holdings Total Excluding Security Lending.*
Size Limitations Holdings Percentage
of PortfolioPolicy Limitations
PercentageCertificates of Deposit $ 24,200,000 0.73% 10% Banker’s Acceptances ------ 0.00% 15% Commercial Paper 328,409,929 9.89% 15% Securities With Higher Volatility ------ 0.00% 10% Repos Beyond 30 days ------ 0.00% 30%
Leverage (30% total Limit)Securities on Loan (dollars out on loan) ------ Reverse Repos ------ Total Leverage ------
Maturity Limitations Currently Policy Limitations Portfolio Average Life 66 days 90 days Maximum Maturity 366 days 397 days Maximum Maturity of Repo 7 days 180 days Maximum Maturity or Reverse Repo 0 days 90 days Average Life of Reinvestment of Cash by Lending Agent 0 days 14 days
Repo Limits Per Dealer March 31, 1999 Total Repo
Percentage
(20% limit)Term Repo
Percentage
(10% limit)Projected
Redemptions
04/01/1999Projected
Position
04/01/1999BancAmerica $ 354,862,000 11% 0% $ 354,962,000 ------ Bear Stearns & Co. ------ 0% 0% ------ ------ CS First Boston ------ 0% 0% ------ ------ Chase ------ 0% 0% ------ ------ DLJ 285,000,000 9% 0% 285,000,000 ------ HSBC Markets ------ 0% 0% ------ ------ Lehman Brothers Inc. 150,000,000 5% 0% 150,000,000 ------ Merrill Lynch Pierce Fenner ------ 0% 0% ------ ------ Morgan Stanley ------ 0% 0% ------ ------ Paine Webber Inc. ------ 0% 0% ------ ------ Prudential Securities ------ 0% 0% ------ ------ SalomonSmith Barney 175,000,000 5% 5% ------ $ 175,000,000 State Street Bank ------ 0% 0% ------ ------ Total $ 964,962,000 $ 789,962,000 $ 175,000,000
Issuer Limitations
**Commercial Paper Cost Percentage
(5% limit)Rating
(A1/P1 or Better)Atlantic Asset $ 54,746,511 1.6% A1/P1 Corp Rec 49,662,500 1.5% A1+/P1 Bavaria Univ 74,663,813 2.2% A1+/P1 Bavaria Trr 29,886,133 0.9% A1+/P1 CSCPP Inc 29,890,875 0.9% A1+/P1 Eureka Securities 39,811,389 1.2% A1+/P1 Charta
49,748,708
1.5% A1/P1 Total
$ 328,409,929 Banker’s Acceptances No Banker’s Acceptance holdings as of 03/31/1999.
** These are the limitations of the formal Investment policy. However, operating guidelines place limits of 3% per issuer.
Average Net Rate of Return of Government Only/Institutional Only Money Market Funds, Money Market Insight, IBC Donoghue, Inc., Ashland, MA
NOTE: Rates are calculated on a 360-day basis.
The above comparison shows how the LGIP has performed relative to its benchmark since July 1994. This benchmark is the IBC Donoghue Government Only/Institutional Only Money Market Funds, which is comprised of privately managed money market funds similar in composition and investment guidelines to the LGIP.
The LGIP net rate of return has outperformed its benchmark since July 1994 by an average of 44.5 basis points. This translates into the LGIP earning $45.86 million over what the average comparable private money fund would have generated.
| Assets | |||||
| Investments, at amorized cost: Securities purchased under agreements to resell |
$ | 964,962,000 | |||
| U.S. Agency Securities | 1,820,750,045 | ||||
| U.S. Treasury Securities | 183,824,463 | ||||
| Commercial Paper | |
328,409,929 |
|||
| Total excluding Securities Lending & Securities Purchased But Not Settled |
$ |
3,297,946,437 |
|||
| Securities Lending Investments, at amortized cost: | ------ | ||||
| Total Securities Lending | ------ | ||||
| Total Investments (Settlment Date Basis) | 3,297,946,437 | ||||
| Due from Brokers – Securities Purchased But Not Settled, at amortized cost: U.S. Agency Securities |
123,578,611 | ||||
| U.S. Treasury Securities | 19,095,056 | ||||
| Commercial Paper |
|
49,769,556 |
|||
| Total Due from Brokers | 192,443,222 | ||||
| Total Investments (Trade Date Basis) | 3,490,389,659 | ||||
| Certificates of Deposit | 24,200,000 | ||||
| Cash | (704) | ||||
| Interest Receivable | |
10,183,274 |
|||
| Total Assets | $ |
3,524,772,229
|
|||
| Liabilities | |||||
| Accrued expenses | $ | 188,709 | |||
| Obligations under securities lending agreement | ------ | ||||
| Due to Brokers | |
192,443,222 |
|||
| Total Liabilities | $ |
192,631,931
|
|||
| Net Assets | $ |
3,332,140,298 |
|||
| Participant Net Asset Value, Price per Unit | $ |
1.00
|
|||
| Total Amortized Cost – Settlement Date Basis | $ | 3,322,146,437 | |||
| Total investment purchases:* | $ | 17,944,870,748 | ||
| Total investment sales: | $ | 592,934,923 | ||
| Total investment maturities: | $ | 16,983,475,630 | ||
| Total net income: | $ | 38,484,395 | ||
| Net of realized gains and losses: | $ | 209,125 | ||
| Net Portfolio yield (360-day basis): | ||||
| January | 4.9660% | |||
| February | 4.8286% | |||
| March | 4.8537% | |||
| Average weighted days to maturity: | 66 days |
* Includes $192,443,222.23 in securities purchased but not settled.
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© 1999 [Updated: May 7, 1999] |
