By Chris DeBow, Managing Director, Public Trust Advisors LLC
You need to invest bond proceeds. Sounds simple right?
At Public Trust Advisors we take a thoughtful approach built over years of experience investing bond proceeds and will happily work with you based on your specific situation.
There is no one size fits all for investing bond proceeds – like any other investment it needs to be guided by both the needs of the underlying public entity and the complexities of the investment marketplace.
The only thing that is true for all situations is that one wrong move and you could violate the public trust that is bestowed upon you. Public Trust Advisors implements a comprehensive investment solution for managing bond proceeds that is anchored in the key tenants of public funds investing: Safety, Liquidity and Yield.
5 things you should consider when investing bond proceeds:
1.) Waiting for a draw schedule from the construction manager may reduce interest income.
a. While having an accurate draw schedule is important, entities may begin investing a portion of their construction funds utilizing the “completion date” method and working backwards to build a ladder with a portion of the funds.
b. Once the construction manager provides the official draw schedule, one can put remaining funds to work along the investment ladder accordingly.
c. Even when you receive a copy of the official draw schedule, rest assured, it will change. Large construction projects are too complex to predict. Amongst other factors, they are attempting to predict weather, material costs, soil samples and future presidents; hence, they are not always correct.
2.) Too much liquidity can be inefficient.
a. Many entities tend to keep too much liquidity on hand.
b. This problem only compounds when securities mature from the investment ladder and are not needed to fund current expenses.
c. It can be beneficial to pay construction expenses twice monthly. This will allow the entity to better time and plan for checks leaving the building for the construction project. If you are constantly paying expenses, things can get complicated.
3.) Do not just focus on today; focus on maximizing interest income over the life of the construction program.
a. Many entities focus on today’s “best rate” and fail to adequately search for the best rates over the life of the construction program.
b. This is especially important when securities mature and the proceeds are not needed. Often times, folks let the fund sit in cash, earning nearly zero, when the funds could be redeployed further out in maturity structure potentially earning additional yield.
4.) Should I hire an investment advisor to help invest the proceeds?
a. A registered investment advisor can bring a lot to the table when it comes to managing bond proceeds. Because the construction program is dynamic and constantly changing, an advisor can be continually scouring the investment marketplace for investment opportunities that may fit into the investment program.
b. If an entity has a full-time staff professional dedicated exclusively to investing, the entity can certainly invest the bond proceeds without an investment advisor. Sometimes, public entities use both internal professionals and external experts, especially on large sophisticated projects.
5.) What happens after I invest the bond proceeds?
a. I have often joked that investing is the easiest thing to do when investing bond proceeds. It can be more important to develop accurate and in depth reports that can be shared with the School Board or governing body.
If you would like to learn more about creating a customized investment solution for bond proceeds, please click the link below to work directly with Mr. DeBow.