LGIP Q1 2012

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FY 2012 Local Government Investment Pool Overview

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  • Welcome to the First Quarter of 2012 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.
  • For the First Quarter we distributed $30.9 million to all participants . Up from $13.9 million for the same quarter last year That breaks down to: $20.3 million for the Endowments ($3.9 last year) $6.7 million for State Agencies ($5.5 last year) $ 2 million for General Fund ($1.8 last year) $ 1.8 million for LGIP ($2.6 last year – lower rates this year compared to last)
  • I will now turn it over to Mark Swenson our Deputy Treasurer to review the LGIP performance. As you know this past quarter was quite volatile. You had the USA downgraded by S & P; The Debt debate in Washington D.C. And the European debt and banking crisis all weighing on the markets. That said, each of the LGIP funds beat their benchmark for the quarter.
  • Pool 5 is our diversified short term fund similar to a prime money market fund with just under $1.3 billion in assets with a $.9997 NAV on 9/30/11 The Fund continues to maintain the highest rating from S&P: AAAF/S1+; even with a USA downgrade by S&P 73 funds were downgraded by S and P due to the USA downgrade, including 14 LGIP type funds – 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. In the first quarter the fund has yielded 16 basis points and we have beaten the S & P LGIP index by 9 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 September we were at $1.5 billion with a $1 Net Asset Value. Disruptions in the overnight repurchase market have eased in the past month and we are shifting our strategy back into more overnight repurchase transactions. We will also ladder treasuries and other full faith and credit products up to 13 month horizon in light of the Federal Reserve announcement to keep interest rates near zero until mid 2013. For Pool 7’s yield we are at 5 basis points for the quarter compared to just 1 basis point for the benchmark 90-day T-Bill
  • Pool 500 had $216 million in assets and a Floating Net Asset Value of just over $1.038 at the end of September and an effective duration of 1.4 years. The weighted average rating of all the securities in Pool 500 is AA. F or the Quarter Pool 500 has yielded 170 basis points outperforming the index by 17 basis points net of fees for the quarter. With interest rates now being set at near zero for another two years, you might want to think about moving a small portion 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 $122 million in assets with a Floating Net Asset Value of $1.01at the end of September and an effective duration of 1.12 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 51% of the fund in investments maturing under a year. YTD Pool 700 has yielded 119 basis points, well above the benchmark. As such we will be modifying the benchmark this month to more accurately measure our performance. 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 again talk about a new product offering for LGIP clients. First introduced this in July.
  • Due to a number of requests from LGIP clients looking for more customized investment vehicles, we are now offering separately managed accounts. Benefits to the SMA: You own all the securities, so you can extend your duration and still trade in and out of the account with a $1 in and $1 out. There is no Floating Net Asset Value risk. (In time we plan on lowering the initial up front deposit to $75 million) If you are interested contact Deputy Treasurer Mark Swenson
  • This is an example of a Separately Managed Account that we have been operating for a number of years now. Pool12 is for CAWCD and had $285.6 million in assets as of Sept. 30. and a NAV of $1.0214. The weighted average rating of all the securities is AA. The duration is about 2.29 years and can go up to 4.5 years. It’s yielding close to its historical benchmark, which in this case is the Barclay’s Capital US aggregate bond index. Pool 12 is not managed to that benchmark, however, partly because the client has asked for 20% of the funds to be invested in less than one year.
  • Now, moving on to the Performance for the Endowment for the first quarter of fiscal year 2012.
  • 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 $3.03 billion. Fixed Income is at $1.4 billion Our S&P 500 allocation is at $997 million Our S&P 400 allocation is at $424 million And Our S&P 600 allocation is at $187 million
  • This slide shows the growth in the total Market Value of the Endowment since December 2006. Value today of $3.03 billion.
  • Here we show unrealized gains and losses. Unrealized Gains are still above half a billion dollars.
  • Now I will turn it back over to Treasurer Ducey to review the final distribution number for Fiscal Year 2012 for K-12 education. Thank you Mark.
  • 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 $77.8 million distribution for K-12 schools - This is the highest from the endowment in history. Total Endowment Distributions are $83. 9 million, when you include the other beneficiaries.
  • Let’s take a look at our State Cash Flow.
  • For the first quarter of 2012, the average monthly balance was up 14% over the first quarter of 2011. While this is good news, you will notice the trend line has flattened out in the past quarter.
  • I’m now pleased to turn over the presentation to Jim Rounds, Senior Vice President at Elliot D. Pollack and Company, a locally based economic forecasting firm.
  • Thank-you Jim 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 Jan. 26, 2012 at 1:30 p.m.
  • LGIP Q1 2012

    1. 1. 11.3.2011 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 </li></ul><ul><li>State Cash Flow </li></ul><ul><li>Arizona and US Economic Update: Jim Rounds, Senior V.P. Elliott D. Pollack & Company </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 2012 Q 1 <ul><li>$30,881,300 </li></ul>
    5. 5. LGIP PERFORMANCE Q1FY 2012
    6. 6. POOL 5 <ul><li>$1.28 Billion Assets as of 9/30/2011 </li></ul><ul><li>Net Asset Value - $ .9997 9/30/2011 </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>$1.5 Billion Assets as of 9/30/2011 </li></ul><ul><li>Net Asset Value - $ 1.000 9/30/2011 </li></ul><ul><li>All securities backed by U.S. Government </li></ul>
    8. 8. POOL 500 <ul><li>$216.3 million as of 9/30/2011 </li></ul><ul><li>Floating Net Asset Value - $1.0388 as of 9/30/2011 </li></ul><ul><li>Keep maximum exposure to any credit at 2.5% </li></ul>
    9. 9. POOL 700 <ul><li>$122.5 million as of 9/30/2011 </li></ul><ul><li>Floating Net Asset Value - $ 1.0138 as of 9/30/2011 </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. POOL 12 <ul><li>$285.6 million in assets as of 9/30/2011 </li></ul><ul><li>Net Asset Value - $1.0214 9/30/2011 </li></ul><ul><li>Invests in A and above credit. Duration is at 2.29 years vs. benchmark of 4.96 years </li></ul><ul><li>Client wants 20% of assets under one year </li></ul>
    13. 13. Endowment Performance Q1 2012
    14. 14. 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%)
    15. 15. ENDOWMENT ASSET ALLOCATION $1,600.04M $1,052.42M $502.79M $1,549.4 million $1,122.1 million $542.2 million $3.03 billion
    16. 16. ENDOWMENT MARKET VALUE $3.03 Billion!
    17. 17. ENDOWMENT UNREALIZED GAINS
    18. 18. Endowment Distribution
    19. 19. K-12 DISTRIBUTIONS New Record Distribution for FY 2012: $77,832,917
    20. 20. State Cash Flow
    21. 21. STATE CASH FLOW TOTAL OPERATING ACCOUNT AVERAGE MONTHLY BALANCE Up 14% in First Quarter YOY $668 million in OCT.
    22. 22. Special Presentation Jim Rounds Senior Vice President Elliot D. Pollack & Company
    23. 23. QUESTIONS?

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