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

Investing Bond Proceeds: Part Three

Posted on Wed, Dec 28, 2016

Part Three: Other Considerations for Investing Bond Proceeds

Creating a successful bond proceeds reinvestment program starts with structuring a strategy that adheres to your governing documents and risk tolerances while simultaneously accounting for the ever-changing nature of your project and the market. 

Arbitrage Rebate: IRS regulations set forth in Section 148(a) of the Internal Revenue Code were enacted to keep public entities from issuing bonds for reasons other than their originally intent.  Arbitrage rebate regulations force any bond issuer to pay 100% tax on investment earnings of gross proceeds in excess of the bond’s arbitrage yield.  Here are a few items to consider:BP3.jpg

  • In general, paying arbitrage rebate is a good thing because it means that you have earned the maximum interest income allowed during your project.
  • Using a reputable arbitrage rebate compliance firm will help you determine your potential liabilities.

Municipal Advisor Rule: The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Exchange Act of 1934 to add a new requirement that “Municipal Advisors” register with the SEC.  The rule places a fiduciary obligation on those providing certain financial and investment advice to municipal entities.  Please also condsider the following:

  • You should not take advice regarding the investment of your proceeds from someone who is not a municipal advisor registered with the SEC.
  • There are some exemptions in regards to registering as a municipal advisor.
  • Exemptions include regisBP3a.jpgtered investment advisors; they already have a fiduciary responsibility.
  • Additionally, your underwriter should not be giving you advice regarding the investment of proceeds as it is outside their scope of work.
  • Finally, if broker dealers are not registered as municipal advisors, they cannot present investment advice but may provide information on securities they have available for purchase or sale.

Remember, prudent investment of your bond proceeds will help you work towards maximizing interest income over the life of your project.  The more you earn, the lower the overall financing cost of your project.

If you would like to speak with a PUBLIC TRUST ADVISORS™ public funds investment professional regarding bond proceeds management, please email info@publictrustadvisors.com and a local representative will be in touch. 

*The information presented should not be used in making any investment decisions. The presentation 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. All comments and discussion presented are purely based on opinion and assumptions, not fact, and these assumptions may or may not be correct based on foreseen and unforeseen events. All calculations and results presented are for discussion purposes only and should not be used for making calculations and/or decisions. Any financial and/or investment decision may incur losses.

Tags: yield, Local Government Investment Pools, investing bond proceeds, fixed income management services, local government investment pool administration, LGIP, LGIP Operational efficiency, Investing Public Funds

Investing Bond Proceeds Series: Part Two

Posted on Wed, Dec 14, 2016

Part Two: Strategies for Investing Bond Proceeds in Today’s Environment.

The goal of investing bond proceeds is to maximize interest income over the life of the project; maintaining the safety and liquidity is always necessary when investing public funds. Due to the complex and ever-changing nature of bond project spending schedules, investment of bond proceeds can require a little more thought than the traditional investment account. 

Here are some strategies to consider when planning a strategy for the investment of your proceeds.

1. Invest Your Funds in a Local Government Investment Pool (LGIP) - If your project is short term in nature, LGIPs can provide both competitive yields and ample liquidity to satisfy your required draws.


2. Match Investments with Liabilities - Ideally, if you can match each investment with a corresponding draw from your draw schedule, you can attempt to optimize the amount of interest income for each specific draw.

Bond Blog 2.png
3. Combined Approach - Combining a multi-tiered approach utilizing both the LGIP and liability matched investment programs may provide the most strategic approach. A combined approach will allow you to utilize a LGIP for draws in the near future as well as unexpected liabilities and fixed income securities to match draws with a longer time horizon.

Bond Blog 2.1.png

The size, duration, and complexity of your bond project combined with the current investment environment play important roles in choosing a strategy for investment of the proceeds. The better you understand your project, the better you will be positioned to maximize interest income earned while investing the proceeds. Stay tuned for the final piece of the PUBLIC TRUST ADVISORS™ Bond Proceeds Series: Part Three: Other Considerations for Investing Bond Proceeds

If you would like to speak with a PUBLIC TRUST ADVISORS™ public funds investment professional regarding bond proceeds management, please email info@publictrustadvisors.com and a local representative will be in touch. 

*The information presented should not be used in making any investment decisions. The presentation 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. All comments and discussion presented are purely based on opinion and assumptions, not fact, and these assumptions may or may not be correct based on foreseen and unforeseen events. All calculations and results presented are for discussion purposes only and should not be used for making calculations and/or decisions. Any financial and/or investment decision may incur losses.

 

Tags: investing bond proceeds, local government investment pool administration, LGIP operational efficency, yield, Investing Public Funds, fixed income management services, Local Government Investment Pools

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

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