Public Trust Advisors Blog

Celebrating Five Years

Posted on Wed, Feb 22, 2017

Public Trust Celebrates Five Years of Service

Public Trust Advisors™ (Public Trust) investment management services for the public sector is celebrating five wonderful years of service and operation with the help of loyal Participants within eight (8) local government investment pools (LGIP)! Since 2012, Public Trust has been meeting the investment and/or administration needs of various local government entities, now totaling over 3,600 Participants nationally.*

We are growing together! It is thanks to the vision of the governing boards and the loyal and growing participants of the Public Trust-managed LGIPs that we have experienced exponential growth since 2012. As of January 31, 2017, Public Trust manages and/or administers LGIP assets totaling approximately $18 billion* across the eight LGIPs, comprised of eleven funds. Year-over-year, the firm has grown from just over $10 billion in LGIP assets under management and administration (January 2016) to $18 billion (January 2017), a total growth of 78%.

Returns vs SP Chart 12-31-16-1.png

The number of Public Trust-managed LGIP Participants continues to grow each year, contributing to the success of all. As of January 31, 2017, total Participants for Public Trust-managed LGIPs reached 3,645!* That’s a growth of approximately 8% within the last year alone. Whether you’ve recently joined or have been a long-term Participant, your continued participation is what makes us all grow together.

For the past five years, Public Trust Advisors has made it a priority to offer high quality, cost-efficient LGIP investment management services that rely on
people, technology, and proven processesThe Public Trust LGIP Administration System, a new generation, LGIP specific back-office system, allows us to operate effectively and efficiently. Our LGIP Investment Advisory services are LGIP-specific, with credit and portfolio management working together to safely manage the public’s funds while finding value. The result? Higher investment returns for Public Trust-managed LGIPs. See Figure One for our performance against Standard & Poor's rating.

As yields continue to rise, 2017 is shaping up to be a year of continued growth for our Participants. Look for new services and enhancements as we all grow together. In the meantime, we would like to hear from you and invite you to learn more about Public Trust.

Pool Breakdown 2017-2.png 

 Need more information? Contact Us!

*Participants comprised of both funded and non-funded accounts. Of the $18 billion, $1.4 billion is administration only for one LGIP comprised of one fund. Data as of January 31, 2017. All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information above is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses. A 'AAAm' rating by Standard and Poor's is obtained after S&P evaluates a number of factors, including credit quality, market price exposure, and management. Ratings are subject to change and do not remove market risk. **The benchmark, the S&P US AAA & AA Rated GIP All 30 Day Net Yield (LGIP30D), is a performance indicator of rated GIPs that maintain a stable net asset value of $1.00 per share and is an unmanaged market index representative of the LGIP universe. The S&P benchmark utilized in this comparison is a composite of all rated stable net asset value pools. GIPs in the index include only those rated based on Standard & Poor’s money market criteria. Pools rated ‘AAAm’ provide excellent safety and a superior capacity to maintain principal value while those rated ‘AAm’ offer very good safety and a strong capacity to maintain principal value (source: Standard and Poor’s website). The comparison between this index and the portfolio may differ in holdings, duration, and percentage composition of each holding. Such differences may account for variances in yield.

Tags: LGIP, yield, safety, investment advisor, LGIP Administration, Investing Public Funds, local government investment pool administration, investment managment for the public sector

Who is flying the plane? -- The Chinese Economy

Posted on Mon, Feb 01, 2016

By Todd Alton, Vice President, Credit Research

Who is Flying the Plane?  -- The Chinese Economy

When will China's economy begin to lift and fly high again and what is the market currently telling us about its airspeed and risk? With the glide path of China’s formerly high-flying economy already in the midst of a half-decade long decline in altitude, recent reports suggest drag is increasing and the country’s economic airspeed is slowing further. Indeed, 11 of 12 economists recently surveyed by Bloomberg suggested they did not anticipate a recovery in economic thrust until at least 2018. In fact, many believe the economy will experience further drag and loss of economic airspeed in 2016, with one group, Capital Economics Ltd of London, forecasting growth as low as 4.4% to end 2015, and declining further in 2016.

Empty_Cockpit.jpg

As the Chinese economy has lost altitude, U.S. income markets have taken notice, below are some warning lights (red flags) in the market as well as some key areas of risk to limit or avoid:

  • Yields on Chinese bank commercial paper have risen at a faster pace than the underlying yield curve.
  • ABCP programs with Chinese banks as the issuer or guarantor are amongst the highest yielding in the ratings category – significant as yield is an indication of risk.
  • Bank commercial paper of countries heavily leveraged to the Chinese economy, such as Australia, is yielding more than their European and global peers in the A1+ rating category.

The Public Trust Perspective

Given the lack of Chinese government openness and economic transparency, the numerous questions surrounding financial reporting by Chinese companies and banks, coupled with the various economic forecasts of “further to fall”, Public Trust Advisors plans to continue avoiding this segment of the market. In addition, we intend to severely limit our exposure to its trading partners whose economies are heavily reliant upon the Chinese economy’s flight plan and cruising altitude.

For general background on China's economy and the global implications, read this article.

 

Tags: commercial paper, safety, Investing Public Funds, public trust

Short-term Interest Rates: The Dot Plot Explained

Posted on Wed, May 27, 2015

By Joe Carroll, Vice President, Sales and Marketing

 

Short-term Interest Rates: The Dot Plot Explained

The Federal Open Market Committee (FOMC) is a twelve member committee consisting of members of the Federal Reserve Board and regional Reserve Bank presidents. The FOMC has eight regularly scheduled meetings throughout the year to discuss and assess economic and financial conditions, monetary policy, and risks to its long-run goals of price stability and sustainable economic growth.

One aspect of these meetings which garners a lot of attention is the dot plot. The dot plot is a visual representation of where each member of the FOMC thinks the federal funds rate should be at the end of each of the next three years and into the future (long run). While the dot plot is not an official tool of the FOMC, it does provide some insight as to what various members of the FOMC are thinking in regards to the federal funds rate.

Here is a picture of the March 18th FOMC meeting dot plot chart.

Dot Plot Blog 1

Each dot represents where individual members of the FOMC think the federal funds rate should be at the end of the year given current economic information. As seen above, the views on where the federal funds rate will be in the future varies quite a bit within the FOMC. For example, in 2016 the majority of the FOMC believes that the federal funds rate should be between 1.5% and 2.0%. There are a few members who think the rate should be much higher or lower than the consensus at the end of 2016.

Further examination of the dot plot provides even more insight into the thought process of the FOMC. The chart below shows the past three dot plot assessments along with the respective Fed Funds Futures contracts. The Fed Funds Futures contracts (seen in red) represent how the market is pricing the federal funds rate in the future. Noticeably, the market is not quite as optimistic as the FOMC. In addition to lower market expectations of the federal funds rate, it is clear that all the members of the FOMC have reduced their outlook for future interest rate levels.

Dot Plot Blog 2

The dot plot can be an insightful and useful tool when examining the federal funds rate and future projections. With recent changes in the FOMC language, we are expecting an increase in the federal funds rate sometime in 2015. Short-term interest rates have been at record lows for years. An increase in interest rates, and therefore interest income can mean a significant change for many local governments. The time for budgeting zero interest income may be coming to an end! Be sure to keep an eye out for the next dot plot and what it means to you.

 

Charts Sourced from Bloomberg

Tags: public funds investing, investment advisor, Short-term interest rates, fixed-income asset management, yield, public funds investor, Public Funds Investment, Local Government Investment Pools, safety, Investing Public Funds, LGIP Administration

Basel III and Local Government Investment Pool Management

Posted on Wed, Feb 04, 2015

By Todd Alton, Vice President, Credit Research

Basel III and Local Government Investment Pool Management...

Dodd-Frank set into motion a comprehensive set of financial regulatory changes referred to as Basel III. which  is intended to be “a comprehensive set of reform measures developed by the Basel Committee on Banking Supervision (and adopted by the United States Federal Reserve Bank)., Source: www.bis.org).

Wall Street, LGIP management

The end goals of Basel III are three-fold: 

1.) “to improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source;” 

2.) “to improve risk management and governance;” 

3.) “to strengthen banks' transparency and disclosures.” (Source: www.bis.org)

The first phase of Basel III became effective for the largest internationally active U.S. banks on January 1, 2014. The second phase of the Basel III Comprehensive Capital Framework is scheduled to go into effect beginning January 1, 2015. This phase will affect the “standard approach” or “non-advanced approach” banking organizations. 

Key Implications:

  • The Basel III risk-based capital rules will apply to all banks and savings associations (and holding companies with greater than $500 million in total assets).

  • The rule will require banks to hold higher levels of regulatory capital.

  • The new risk-weighting regime will require institutions to maintain significantly higher capital reserves when they hold assets considered to have higher risk exposures.

  • In certain circumstances, some items that were previously included in a bank’s capital ratios will now either be reduced or eliminated from the calculation, thus reducing depositors’ overall capital protection.

Potential effects on banks that “pay up” for deposits (i.e. fund themselves with hot/volatile money):

  • Margin compression: more capital held equates to less productively deployed capital and thus lower earnings which when added to the higher costs of the deposits equals compression.

  • Acquiring assets with yields sufficient enough to “pay for” the increased capital charge will result in the bank necessarily taking on either greater interest rates or credit risks. 

banking, safety, yield

Banks still  willing to pay the highest deposit rate in their trade areas will be those that have to replace wholesale funding and those that are trying to grow rapidly. 

In the final analysis, as a public funds investor, what are the pros and cons of depositing the public’s funds in a bank that is paying top of, or above, market deposit rates? . . . AND is the risk/reward profile in balance, a prudent allocation of funds, and an appropriate discharge of our  fiduciary duties? And ultimately, are the extra few basis points really worth the risk, even with collateral?

Please feel free to contact the management team at Public Trust Advisors with any questions regarding BASEL III and its implications on your local government by emailing us at info@publictrustadvisors.com.


Tags: yield, Local Government Investment Pools, safety, Investing Public Funds

What the Fed Said: Staying the Course...

Posted on Mon, Nov 03, 2014

By Neil Waud, CFA, Senior Portfolio Manager

Investing Public Funds: What the Fed Said - Staying the Course

The Federal Open Market Committee (FOMC) concluded its two day meeting last week. In the wake of recent volatility stemming from global growth and geopolitical concerns, the markets were bracing for the FOMC to take a more dovish tone when compared to the September 17th meeting. However the FOMC generally stayed the course by ending the QE3 program and noting significant progress in regards to the Committee’s long run goals of stable prices and a maximum rate of employment. The federal funds rate remains targeted at 0% to 0.25%, and will remain low for a “considerable time.” The stock market and bond prices were modestly lower after the announcement.

The vote today was not unanimous. Voting against today’s decision was Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, believing that the continued sluggishness in the inflation outlook warranted a continuation of the Fed’s asset purchase program.

 investing public funds, Investing Public Funds, public funds investing, public funds investor, public trust, safety, yield

Tags: public funds investing, yield, public funds investor, safety, Investing Public Funds, public trust

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