LGIP Q4 2011

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FY 2011 Q4 Local Government Investment Pool Overview

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  • Welcome to the 4 th Quarter and year-end conference call and quarterly meeting
  • Here is today’s agenda we will be going through…
  • Our investment philosophy remains the same: Safety Before Liquidity Before Yield We have formatted today’s presentation to review each pool in this regard.
  • Through the end of June we distributed $56.6 million to all participants . That breaks down to: $23 million for State Agencies $17.4 million for the Endowments $ 9.6 million for LGIP $ 6.6 million for General Fund
  • Now lets start with the LGIP performance
  • Pool 5 is our diversified short term fund similar to a prime money market fund with just under $1.5 billion in assets with a $1 NAV The Fund continues to maintain the highest rating from S&P: AAAF/S1+; even with a USA downgrade by S&P, we should still maintain our AAAf/S1+ rating 73 funds last week were put on negative watch because of possible USA downgrade – POOL 5 WAS NOT ONE OF THEM We will be extending the overall maturities in the fund to pick up some yield, but well within a margin of safety once interest rates increase. YTD the fund has yielded 20 basis points and we have beaten the S & P LGIP index by 6 basis points - net of fees.
  • Now onto Pool 7 which invests only in products backed by the full faith and credit of the United State Government. At the end of June we were at $1.8 billion with a $1 Net Asset Value. We are monitoring events in regards to a USA downgrade or default. The Pool will remain liquid. We have no Treasuries maturing in the fund during the first three weeks of August. So even if a short-term default occurs, we don’t expect any impact. For Pool 7’s yield we are at 11 basis points YTD – the same as the benchmark 90-day T-Bill
  • Pool 500 had $210 million in assets and a Floating Net Asset Value of just over $1.03 at the end of June and an effective duration of 1.5 years. The weighted average rating of all the securities in Pool 500 is AAA. YTD Pool 500 has yielded 179 basis points and we have beaten the index by 9 basis points net of fees for the year. As was said at the last meeting, you might want to think about moving a small portion - say 5 percent - of your Pool 5 funds in to 500 to pick up yield. If this sounds of interest, please contact Dale Stomberg in Investment Accounting.
  • Pool 700 is a full faith and credit medium term fund that had just over $120 million in assets with a Floating Net Asset Value of just over $1 at the end of June and an effective duration of 1.42 years. Similar to Pool 500, the State has been investing a small portion of its operating funds in this pool to pick up yield. To mitigate interest rate increases we are keeping Pool 700 shorter with 49% of the fund in investments maturing under a year. YTD Pool 700 has yielded 124 basis points and we have beaten the index by 43 basis points. Again, if you are interested in moving any of your Pool 7 funds into 700 to pick up yield, please contact Dale Stomberg in Investment Accounting.
  • Now I want to talk about a new product offering for LGIP clients
  • Due to a number of requests from LGIP clients looking for more customized investment vehicles, we are now offering separately managed accounts. (In time we plan on lowering the initial up front deposit to $75 million) If you are interested contact Deputy Treasurer Mark Swenson
  • Now, moving on to the Performance for the Endowment for fiscal year 2011.
  • First, a map that show the make-up of Arizona land The proceeds of state trust land sales come to our office to invest in perpetuity K-12 schools are the prime beneficiary and make up about 87% of state trust land.
  • Total market value of the Endowment is at a record high of $3.29 billion and earned a record return of 16.14% this past year. Fixed Income is at $1.5 billion Our S&P 500 allocation is at $1.1 billion Our S&P 400 allocation is at $523 million And Our S&P 600 allocation is at $134 million
  • This slide shows the growth in the total Market Value of the Endowment since December 2006. Value today of $3.29 billion.
  • Here we show unrealized gains and losses. Gains are also at all-time record at $800 million.
  • Now let’s take a look at the preliminary distribution number FY 12.
  • K-12 Education is the primary recipient of the endowment. Here you can see the distributions to K-12 since 2000. Distributions are based on a Constitutional formula implemented in 2004. For this current year, t he preliminary is a $75 million distribution for K-12 schools - This is the highest from the endowment in history. Our final estimate is made in October after the final inflation for the 2 nd quarter is published so we’re being conservative right now and if inflation is lower, then payouts will be a bit higher.
  • This is showing Arizona’s operating cash flow. We have been positive for the past 13 months! Today’s balance is: $1.2 Billion
  • As our models indicated the state has ended the year with more cash on hand than at the beginning and it did with $131 million more cash on hand. This is a good sign that the worst of our cash flow problems are likely behind us.
  • Looking at total non-farm employment for Arizona. Very slow growth but slightly positive year over year
  • Unemployment was 9.3% in June just above the national rate of 9.2% Our neighbors in California in May were at 11.7% and Nevada at 12.1%
  • Looking at sales of existing homes through March, they are nearing long-term trend line.
  • This is the average resale price of homes in Arizona as measured by the S&P Case Schiller index. While it has declined recently, it is not the dramatic fall that occurred from the peak in 2006 to the trough in early 2009.
  • I’m now pleased to turn over the presentation now to Alex Roever, He is the head of Short-term fixed income research at JP Morgan Securities he is joining us on the line.
  • Thank-you Alex for that insight, We are now ready to take questions. Please remember to identity yourself. You can ask over the phone or use the chat function on your computer screen. ----------------------------------------------------------------- Thank-you for your attendance today. I appreciate your business. Our next meeting is scheduled for Nov. 3 at 1:30 p.m.
  • LGIP Q4 2011

    1. 1. 7.21.2011 LGIP QUARTERLY MEETING & CONFERENCE CALL
    2. 2. AGENDA <ul><li>Earnings </li></ul><ul><li>LGIP Performance </li></ul><ul><li>New LGIP Product </li></ul><ul><li>Endowment Performance </li></ul><ul><li>Endowment Distribution Formula </li></ul><ul><li>State Cash Flow </li></ul><ul><li>Arizona Economic Update </li></ul><ul><li>US Short –Term Credit Outlook: Alex Roever, Head of Short-Term Fixed Income Research, JP Morgan Securities </li></ul><ul><li>Q & A </li></ul>
    3. 3. INVESTMENT PHILOSOPHY <ul><li>SAFETY </li></ul><ul><li>before </li></ul><ul><li>LIQUIDITY </li></ul><ul><li>before </li></ul><ul><li>YIELD </li></ul>
    4. 4. EARNINGS FOR FY 2011 <ul><li>$56,642,619 </li></ul>
    5. 5. LGIP PERFORMANCE 4th Quarter and FY 2011 YTD
    6. 6. POOL 5 <ul><li>$1.46 Billion Assets as of 6/30/2011 </li></ul><ul><li>Net Asset Value = $1.00 as of 6/30/2011 </li></ul><ul><li>Diversified investments weighted to highly rated Commercial Paper first, Repurchase agreements second, and Agency/Treasuries third </li></ul>
    7. 7. POOL 7 <ul><li>$1.8 Billion Assets as of 6/30/2011 </li></ul><ul><li>Net Asset Value - $ 1.0001 as of 6/30/2011 </li></ul><ul><li>All securities backed by U.S. Government </li></ul>
    8. 8. POOL 500 <ul><li>$210.9 million in assets as of 6/30/2011 </li></ul><ul><li>Floating Net Asset Value - $1.0349 as of 6/30/2011 </li></ul><ul><li>Keep maximum exposure to any credit at 2.5% </li></ul>
    9. 9. POOL 700 <ul><li>$120.7 million in assets as of 6/30/2011 </li></ul><ul><li>Floating Net Asset Value - $ 1.0100 as of 6/30/2011 </li></ul><ul><li>All securities backed by U.S. Government </li></ul>
    10. 10. LGIP NEW PRODUCT
    11. 11. Separately Managed Accounts (SMAs) <ul><li>Designed for those seeking a customized investing solution based on your risk tolerance, liquidity needs and duration target </li></ul><ul><li>Monthly Liquidity </li></ul><ul><li>Requires $100 million minimum deposit </li></ul><ul><li>Pre-Meeting with Portfolio Manager to set up Account and determine investing needs </li></ul><ul><li>Costs: Standard 6 basis points, plus yearly accounting charges of about $20,000 that will come out of earnings (equivalent to 2 basis points) </li></ul>
    12. 12. Endowment Performance Through June 2011
    13. 13. ENDOWMENT TRUST LANDS <ul><li>Privately-owned land (17%) </li></ul>State trust land (13%) Tribal Reservations (28%) US Forest Service ( 15%) Bureau of Land Management ( 17%)
    14. 14. ENDOWMENT ASSET ALLOCATION $1,600.04M $1,052.42M $502.79M $1,549.4 million $1,122.1 million $542.2 million $3.29 billion
    15. 15. ENDOWMENT MARKET VALUE UPWARD TREND $3.29 Billion!
    16. 16. ENDOWMENT UNREALIZED GAINS GAINS AT RECORD LEVELS $800 million!
    17. 17. Endowment Distribution
    18. 18. K-12 DISTRIBUTIONS
    19. 19. State Cash Flow
    20. 20. STATE CASH FLOW TOTAL OPERATING ACCOUNT AVERAGE MONTHLY BALANCE BACK IN BLACK $1.3 Billion in June
    21. 21. STATE CASH FLOW As forecasted, ending balance above beginning balance
    22. 22. ARIZONA ECONOMIC UPDATE
    23. 23. AZ NON-FARM EMPLOYMENT
    24. 24. AZ UNEMPLOYMENT AT 9.3%
    25. 25. AZ SALES OF EXISTING HOMES Quarterly Data Jan. 1990 through March 2011
    26. 26. AZ HOUSING PRICES
    27. 27. Special Presentation W. Alexander Roever, CFA AC Managing Director | US Credit Strategy | Short Term Fixed Income J.P. Morgan Securities
    28. 28. QUESTIONS?

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