8d LGI Pool presentation
Item No. 8d_supp . Meeting Date: May 8, 2018 Statement of Investment Policy Amendment to add the Washington State Local Government Investment Pool Commission Request Port's Investment Portfolio: Opportunity for Diversification Recommendation for action: Add the Washington State Local Government Investment Pool (LGIP) to the list of authorized investments in the Port's investment Policy Staff recommends adding the LGIP as an option for investing a portion of cash for short-term liquidity needs Many other large local entities include the LGIP in short-term liquidity and investment strategies Objectives: increase portfolio diversification and lower risks. Details about Port's Investment Pool previously provided to Commission 2 Investments: Background & Policy Authorized investments are The investment policy is reviewed made in accordance with and periodically, and amended as subject to restrictions of the appropriate to address changes in Revised Code of Washington law, market conditions or follow best practices. (RCW) 36.29.020. Last amendment: June 5, 2012. Commission resolution first Staff recommends adding the State's approved Port investment Local Government Investment Pool policy, adopted as of June 11, (LGIP). 2002. State laws limits the types of investments the Port can invest in. The Port's Investment Policy is included in the documents set. 3 Liquidity & Investments Port's Investment Portfolio 12/31/2017 Liquidity management (short & long term) MORTGAGE- REPURCHASE BACKED AGREEMENTS Short term: SECURITIES - 5.1% HIGH GRADE 6.4% Have sufficient cash available to pay all Port disbursement, timely Investments primarily in Repurchase Agreements (REPOs) (REPO definition in Appendix) Long term use of and reliance on REPOs. Due to TREASURY FEDERAL NOTES AGENCIES changing market conditions affecting REPO 38.3% 44.3% availability, need to diversify into other shortterm investment options. Adding the LGIP supports investments for short term liquidity FEDERAL AGENCIES Long term: DISCOUNT NOTES Invest excess funds for longer term liquidity needs 6.0% Short term investments primarily in REPOs. Adding LGIP supports short term liquidity 4 What is the LGIP? Local Government Investment Pool Voluntary investment vehicle operated by State Treasurer's office since 1986 Serves as an investment vehicle for eligible governmental entities to invest cash surpluses Operates as an investment pool, like a money market fund It is a safe, liquid, diversified and competitive investment option 5 LGIP Participants @ 644 local governmental accounts:- all 39 counties, (including King County) larger cities (including Seattle, Auburn, Lacey, Redmond), colleges & universities, special districts (including Seattle Housing Authorities, Sound & Pierce Transits, Clark & Snohomish Counties Public Utilities) Option to invest all or a portion of surplus cash. Smaller entities who may not have the resources to manage their own investments might invest all surplus cash. Many large entities include the LGIP in short-term liquidity and investment strategies. Port plans to invest a portion of cash for short-term liquidity needs Both the Port of Tacoma & the Northwest Seaport Alliance currently invest a portion of their cash in the LGIP. NWSA Commission approved the LGIP in January 2016. 6 LGIP Characteristics LGIP's diversified pool of investments are primarily money market instruments that are: Short term: Average maturity 60 days Maximum maturity 397 days high-quality, highly liquid. The LGIP has an investment policy; its objectives are similar to those of the Port of Seattle's: safety of principal, maintaining liquidity to meet cash flows, and yield, providing a competitive interest rate The same State laws (RCW) 36.29.020) limiting authorized investments apply to the LGIP 7 LGIP Characteristics cont'd While the LGIP is considered a safe, liquid, and competitive investment option, Investment in the LGIP is not a bank deposit, and is not insured or guaranteed by the FDIC, the State of Washington, or any other governmental agency. The LGIP supports Port's investment policy objectives: safety, liquidity and yield 8 Summary of LGIP benefits Benefits of the LGIP for the Port: Daily access and availability, even when REPO or other options are not Can accommodate the size, and precise timing requirements of the Port Competitive rates: LGIP recent daily yield ranges: December 2017 - 1.16% to 1.38% (vs. Port REPO 1.03% to 1.46%) January 2018 - 1.36% to 1.44% (vs. Port REPO 1.25% to 1.46%) Gain access to State Treasurer's resources (portfolio management & credit analysis teams) High quality, diversified option Risk mitigation, available if/when other options are not Low cost: Estimated annual fees less than 0.01% Loss record no losses 9 Steps for adding the LGIP Request Commission approval, with two resolutions: 1. Adopt a Port of Seattle resolution to restate the Port of Seattle Investment Policy, adding the Washington State Local Government Investment Pool (LGIP), under Section 9, Authorized Investments. 2. Adopt - Office of the Washington State Treasurer (OST) LGIP Resolution, authorizing the investment of The Port of Seattle funds in the Washington State Local Government Investment Pool (LGIP) maintained by the OST. 10 Appendix: 11 What is a Repurchase Agreement (REPO)? At agreement opening: Port "lends" cash to a Broker/Dealer (B/D) Cash at agreed upon interest rate and term*1 Port Broker/Dealer B/D sends collateral*2 equal to 102% to Collateral 105% of cash amount Port's custody bank *1 Typically 1 day, 60 days maximum; & *2 in the form of high quality releases cash only when U.S. government securities ; both as per Port's Investment Policy. collateral received Port's custody bank returns At maturity: collateral only when cash & interest received The Port receives cash + interest from B/D and returns the collateral Collateral Port Broker/Dealer Cash + interest REPO is a collateralized short-term investment contract 12 Repurchase Agreements (REPO) Benefits of REPOs to the Port: Daily access Size(can accommodate the size range (from $5 to 100 million or more) for the Port's daily & monthly cyclical needs) Timing(executed in seconds at or before investment markets opening) Secure, high quality collateral(collateral must comply with statute & Port's investment policy, and be 102%/105% of the REPO amount) Competitive rate Changing Market Conditions impact availability of REPOs Less Broker/Dealer participation Less collateral available: Federal government and agencies have reduced debt issues for several years Increasing occasions when there is no REPO availability to the Port Other alternatives do not have the size, or available at precise times Port's long term use/reliance needs to be modified due to market changes 13 End of presentation 14
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