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2016: A Look At Local Government Investment Pools
Guyna G. Johnson
Director
S&P Global
Copyright © 2016 by S&P Global.
All rights reserved.
Louisiana Asset Pool Management Pool Annual Meeting –
October 28, 2016
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Presentation Agenda
Private & Confidential 2
• Provide background on S&P Local Government Investment Pool (LGIP)
Ratings
• Discuss impact of Money Market Fund (MMF) Regulations
• Review trends in Libor, MMF investments, asset flows
• Deep dive into S&P Rated LGIPs
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Background on S&P LGIP Ratings
3Private & Confidential
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Overview of Standard & Poor’s Fund Ratings
Private & Confidential 4
• Standard & Poor’s has been rating fixed income funds since December 1983
• The Fund Ratings Group was officially formed in 1989
• Global team is comprised of 20+ fund analysts in 5 countries averaging 10+
years of fixed-income and fund ratings experience
• Provides ratings and evaluations for over 800 “funds” globally, from over 200
fund sponsors:
o 400+ Principal Stability Fund Ratings – Money Market Funds
o 250+ Fund Credit Quality and Volatility Rated funds – Fixed Income Funds
o Includes 80+ Local Government Investment Pools
o Includes Approximately 65 Liquidity Assessments
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Types of Ratings We Provide
Private & Confidential 5
1. Principal Stability Fund Ratings (PSFRs) – Globally 400+ funds with AUM over
US$2.4 trillion, with the majority located in the US, followed by Europe, and the
remainder located in Japan, Australia, Singapore and Canada.
• A PSFR, commonly referred to as a money market fund rating, is a forward-
looking opinion about a fixed-income fund’s ability to maintain principal
value (i.e., stable net asset value, or "NAV").
• PSFRs have an "m" suffix (e.g., 'AAAm') to distinguish the principal stability
fund rating from Standard & Poor's issue or issuer credit ratings.
2. Fund Credit Quality & Fund Volatility Ratings – Globally 250+ funds
• Fund Credit Quality Ratings (FCQRs) is a forward looking opinion that
addresses level of protection against losses from credit defaults
o Represented by ‘f’ suffix after the traditional rating symbol (AAAf)
• Fund Volatility Ratings (FVRs)
o Addresses a fund’s sensitivity to changing market conditions
o Represented by ‘S’ scale (S1, S2, etc.); added in 1994 to complement
FCQRs
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List of S&P Rated LGIPs Under PSFR Criteria
Private & Confidential 6
Pool Name Rating Date Pool Managed By State
Alaska Municipal League Investment Pool AAAm 5/6/2009 Non-Gov't Entity AK
California Asset Management Trust/Cash Reserve Portfolio AAAm 8/21/2001 Non-Gov't Entity CA
Colorado Local Government Liquid Asset Trust (COLOTRUST PLUS+) AAAm 4/24/1996 Non-Gov't Entity CO
Colorado Local Government Liquid Asset Trust (COLOTRUST PRIME) AAAm 11/16/1992 Non-Gov't Entity CO
Colorado Surplus Asset Fund Trust (CSAFE) AAAm 11/13/1995 Non-Gov't Entity CO
Connecticut State Treasurer's Short-Term Investment Fund AAAm 1/2/1996 Gov't Entity CT
Lone Star Investment Pool - Corporate Overnight Fund AAAm 8/21/1995 Non-Gov't Entity TX
Lone Star Investment Pool - Government Overnight Fund AAAm 3/2/2009 Non-Gov't Entity TX
Florida Cooperative Liquid Assets Securities System AAAm 4/21/2015 Non-Gov't Entity FL
Florida Education Investment Trust Fund AAAm 10/4/2010 Non-Gov't Entity FL
Florida PRIME AAAm 12/21/2007 Non-Gov't Entity FL
Florida Surplus Asset Fund Trust AAAm 2/7/2008 Non-Gov't Entity FL
Florida Trust Day to Day Fund AAAm 1/20/2009 Non-Gov't Entity FL
Illinois Funds - Money Market Fund (The) AAAm 10/9/1996 Gov't Entity IL
Illinois School District Liquid Asset Fund Plus - Liquid Class AAAm 11/13/1997 Non-Gov't Entity IL
Illinois School District Liquid Asset Fund Plus - Max Class AAAm 11/13/1997 Non-Gov't Entity IL
Illinois Trust AAAm 10/30/2002 Non-Gov't Entity IL
Iowa Schools Joint Investment Trust AAAm 5/26/2011 Non-Gov't Entity IA
Local Government Investment Cooperative AAAm 2/8/2006 Non-Gov't Entity TX
Louisiana Asset Management Pool AAAm 4/11/1995 Non-Gov't Entity LA
Maryland Local Government Investment Pool AAAm 4/18/2000 Non-Gov't Entity MD
Massachusetts Development Finance Agency Short Term Asset Reserve Fund AAAm 12/8/1998 Non-Gov't Entity MA
Michigan Cooperative Liquid Assets Securities System AAAm 4/3/2009 Non-Gov't Entity MI
Michigan Liquid Asset Fund Plus AAAm 11/13/1997 Non-Gov't Entity MI
Minnesota School District Liquid Asset Fund AAAm 4/20/2001 Non-Gov't Entity MN
Minnesota School District Liquid Asset Fund Plus Term I - 0617 AAAm 10/1/2015 Non-Gov't Entity MN
Missouri Securities Investment Program - Liquid Series AAAm 2/2/2016 Non-Gov't Entity MO
MNTrust - Investment Shares AAAm 12/2/2016 Non-Gov't Entity MN
Nebraska Liquid Asset Fund AAAm 11/13/1997 Non-Gov't Entity NE
New Hampshire Public Deposit Investment Pool AAAm 2/3/2011 Non-Gov't Entity NH
New Jersey Asset & Rebate Management Program/Joint Account AAAm 7/11/1997 Non-Gov't Entity NJ
Rated Standard & Poor's LGIP's (As of 7/1/2016)
Rating
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List of S&P Rated LGIPs Under PSFR Criteria cont.
Private & Confidential 7
New Mexico Local Government Investment Pool AAAm 3/5/2009 Gov't Entity NM
New York Cooperative Liquid Assets Securities System AAAm 4/3/2009 Non-Gov't Entity NY
New York Liquid Asset Fund - Liquid Portfolio AAAm 5/4/1998 Non-Gov't Entity NY
New York Liquid Asset Fund - MAX Portfolio AAAm 5/4/1998 Non-Gov't Entity NY
North Carolina Capital Management Trust - Cash Portfolio AAAm 10/21/1998 Non-Gov't Entity NC
Orange County Educational Money Market Fund AAAm 12/1/2008 Gov't Entity CA
Orange County Money Market Fund AAAm 12/1/2008 Gov't Entity CA
Pennsylvania INVEST Community Pool AAAm 8/26/1999 Gov't Entity PA
Pennsylvania INVEST Daily AAAm 2/8/1996 Gov't Entity PA
Pennsylvania Local Government Investment Trust/PLGIT Portfolio AAAm 11/21/1997 Non-Gov't Entity PA
Pennsylvania Local Government Investment Trust/PLGIT/ARM Portfolio AAAm 11/21/1997 Non-Gov't Entity PA
Pennsylvania Local Government Investment Trust/PLGIT/PRIME AAAm 6/14/2013 Non-Gov't Entity PA
Pennsylvania School District Liquid Asset Fund - Liquid Series AAAm 11/13/1997 Non-Gov't Entity PA
Pennsylvania School District Liquid Asset Fund - Max Series AAAm 11/13/1997 Non-Gov't Entity PA
Puerto Rico Government Investment Trust Fund AAAm 6/10/1996 Non-Gov't Entity PR
State Treasury Asset Reserve of Ohio (STAR OHIO) AAAm 7/10/1995 Gov't Entity OH
Texas Cooperative Liquid Assets Securities System AAAm 4/3/2009 Non-Gov't Entity TX
Texas Short Term Asset Reserve (TexSTAR) Cash Reserve Fund AAAm 4/8/2002 Non-Gov't Entity TX
TexasTERM Local Government Investment Pool/TexasDAILY Portfolio AAAm 9/20/2001 Non-Gov't Entity TX
TEXPOOL AAAm 3/28/1995 Non-Gov't Entity TX
TEXPOOL Prime AAAm 12/9/2002 Non-Gov't Entity TX
Virginia Local Government Investment Pool AAAm 6/15/2005 Gov't Entity VA
West Virginia Government Money Market Pool AAAm 8/9/2007 Non-Gov't Entity WV
West Virginia Money Market Pool AAAm 8/9/2007 Non-Gov't Entity WV
Wisconsin Investment Series Cooperative-Cash Management Series AAAm 12/16/2008 Non-Gov't Entity WI
Wisconsin Investment Series Cooperative-Investment Series AAAm 12/16/2008 Non-Gov't Entity WI
Wyoming Government Investment Fund Liquid Asset Series AAAm 3/15/2007 Non-Gov't Entity WY
Key
Gov't Entity (i.e. City, County, State)
Non-Gov't Entity (i.e. Private Firm/Sub-Advised)
Gov't Entity & Non-Gov't Entity (i.e. City, County, State, Private Firm/Sub-Advised)
58
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List of S&P Rated LGIPs Under FCQR/FVR Criteria
Private & Confidential 8
Pool Name Rating Date Pool Managed By State
Arizona LGIP Pool 5 AAAf S1+ 11/10/2008 Gov't Entity AZ
CalTRUST Short Term Fund AAf S1+ 10/10/2006 Non-Gov't Entity CA
City of Anaheim Treasurer Investment Pool AAf S1 7/7/2008 Gov't Entity CA
City of Long Beach California Investment Pool AAAf S1 11/14/2000 Gov't Entity CA
Contra Costa County Investment Pool AAAf S1+ 11/19/2007 Gov't Entity CA
Lone Star Investment Pool - Corporate Overnight Plus Fund AAAf S1+ 5/20/1999 Non-Gov't Entity TX
Florida Fixed Income Trust: Commercial Paper Pool AAf S1 6/30/2016 Non-Gov't Entity FL
Florida Fixed Income Trust: Enhanced Cash Portfolio AAf S1 6/30/2016 Non-Gov't Entity FL
Florida Fixed Income Trust 1-3 Year Fund AAf S1 4/28/2015 Non-Gov't Entity FL
Florida Local Government Investment Trust AAAf S1 11/10/1994 Non-Gov't Entity FL
Florida Treasury Investment Pool A+f S2 12/2/2010 Non-Gov't Entity FL
Georgia Extended Asset Pool AA+f S1 11/9/2000 Gov't Entity GA
Georgia Fund 1 AAAf 6/19/1995 Gov't Entity GA
Hillsborough County Investment Pool AA+f S1 3/31/2008 Gov't Entity & Non-Gov't Entity FL
Illinois TERM Series C - 0916 AAAf 3/11/2016 Non-Gov't Entity IL
Illinois TERM Series D - 0917 AAAf 3/25/2016 Non-Gov't Entity IL
Minnesota School District Liquid Asset Fund AAAf 4/20/2001 Non-Gov't Entity MN
Missouri Securities Investment Program Term D - 0817 AAAf 12/1/2015 Non-Gov't Entity MO
San Diego County Treasurer's Pooled Money Fund AAAf S1 5/16/2001 Gov't Entity CA
Sarasota County Investment Pool AAf S1 11/1/2013 Gov't Entity FL
Solano County Treasurer's Investment Pool AAf S1 2/22/2007 Gov't Entity CA
State of Texas Treasury Pool AAAf S1 4/29/2002 Gov't Entity TX
Texas Term, Local Government Investment Pool, Series DD – 1216 AAAf 9/29/2015 Non-Gov't Entity TX
VACo/VML Virginia Investment Pool (VIP) AAf 1/23/2014 Gov't Entity VA
Ventura County Treasury Portfolio AAAf S1+ 6/5/1996 Gov't Entity CA
Key
Gov't Entity (i.e. City, County, State)
Non-Gov't Entity (i.e. Private Firm/Sub-Advised)
Gov't Entity & Non-Gov't Entity (i.e. City, County, State, Private Firm/Sub-Advised)
Rated Standard & Poor's LGIP's (As of 7/1/2016)Rating
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The Rating Process
Private & Confidential 9
1. Contract
The issuer requests a rating and
signs an engagement letter.
2. Pre-evaluation
Standard & Poor’s assembles
a team of analysts to review
pertinent information.
3. Management Meeting
Analysts meet with management
team to review and discuss
information.
6. Notification
S&P generally provides the issuer
with a pre-publication rationale for
its credit rating for fact-checking
and accuracy purposes.
5. Rating Committee
The committee meets to review
and discuss the lead analyst’s
rating recommendation and
presentation and then votes
on the credit rating.*
4. Analysis
Analysts evaluate information
and propose the rating to a
rating committee.
7. Publication
S&P typically publishes a press
release announcing the public
rating and posts the rating on
www.standardandpoors.com.
8. Surveillance of
Rated Issuers and
Issues
*S&P may allow for an appeal only if the issuer can provide new and significant information to support a potentially difficult rating conclusion.
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Sample Components of S&P Fund Rating Analysis
Private & Confidential 10
QUANTITATIVE
Overall portfolio credit quality
Individual security credit quality
Counterparty risk and exposure
Diversification of securities
Credit Deterioration vs. Default
Net Asset Value Stability
Weighted Avg Maturity (WAM) / Duration
Maturity Structure (Ladder vs. Barbell)
Pricing
Liquidity
Shareholder Composition/Asset Volatility
Structured & Variable Rate Notes
Leverage: Rev Repo/Sec Lending
QUALITATIVE
Depth and stability of organization & management
team
Experience and track record of fund manager
Operating policies and risk preferences
Internal controls
Fund Governance
Communication with S&P and commitment to
rating
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Key Criteria Elements – Principal Stability Fund Rating (MMF)
Private & Confidential 11
Credit Quality
• Minimum 50% exposure to securities A-1+ and A-1 securities <= 5 business days
• Maximum 50% exposure to securities A-1 > 5 business days and overnight repurchase agreements
with A-2 rated counterparties (10% limit included within 50%)
WAM and WAM (Final)
• 60 days and 90 – 120 days*
Cure Periods Apply For Breaches of Quantitative Metrics including:
• NAV / Diversification / 10% illiquid basket / Overall credit quality or an issuer downgrade below A-1
Monitoring Frequency
• Weekly monitoring of portfolio holdings and summary statistics and annual onsite management review
meeting
Annual On-site Management Review Meeting
• The fund rating is based on a fund’s independent ability to maintain principal stability and does not
include a fund sponsor’s willingness and/or ability to support the fund’s NAV.
* May increase to 120 days if a fund invests in floating rate sovereigns or government-sponsored entities rated AA- or higher
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Sample of Surveillance Summary Information
Private & Confidential 12
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Sample Investment Pool Profile
Private & Confidential 13
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Discuss Impact of Money Market Fund Regulations
14Private & Confidential
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Summary of SEC’s MMF Reforms
Private & Confidential 15
July 23, 2014 SEC adopts reforms to Rule 2a-7 (rule governing MMFs) of Investment Company Act of 1940
o Triggered by the 2007-2008 financial crisis (susceptibility of MMF to ‘runs’ & risks to the U.S. financial system)
o These are on top of prior amendments to Rule 2a-7 adopted in 2010
o Represent significant changes to the way MMFs —particularly institutional prime funds—currently operate.
Amendments primarily combine two approaches for restructuring money market fund operations
(1) FLOATING NAV: requiring a floating NAV per share for any MMF (except government/retail MMFs)
• Government MMFs – must invest 99.5% or more of assets in cash, government securities, and/or repo
agreements collateralized by government securities.
• Retail MMFs – natural persons
• Floating NAV – Must price and transact in its shares based on the market value of underlying fund
holdings at a NAV rounded to the fourth decimal place (e.g., $1.0000).
• Stable NAV – May continue to use the amortized cost method and/or the penny-rounding method to
value its portfolio if the board of directors has a good faith belief that it is in the best interests of the fund
and its shareholders to do so
(2) LIQUIDITY FEE & GATES: permitting a MMF to impose liquidity fees or temporarily suspend redemptions
(“gate”) in certain circumstances, but requiring a MMF to impose liquidity fees or gates if the fund’s weekly
liquid assets fall below 10% of its total assets, unless the fund’s board, including a majority of its independent
directors, determines otherwise.
• Discretionary – If a money market fund’s weekly liquid assets fall below 30% of its total assets, the
fund’s board of directors, including a majority of its independent directors, may impose a liquidity fee up
to 2% or suspend redemptions for up to 10 business days in a 90-day period.
• Required – If a money market fund’s weekly liquid assets fall below 10% of its total assets, the fund
must impose a liquidity fee of 1%, unless the fund’s board, including a majority of its independent
directors, determines otherwise. The required liquidity fee can be imposed indefinitely.
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SEC’s MMF Reform: Liquidity Fees And Redemption Gates Impact on PSFRs
Private & Confidential 16
LIQUIDITY FEE
• Adopted: up to 2% fee if level of weekly
liquid assets falls below 30% of fund’s
total assets; or
• Impose a 1% fee if weekly liquid assets
falls below 10% (all at board’s
discretion).
• Current language indicates the fee would
be paid in a manner that would benefit
shareholders still in the fund; thus,
buttressing the NAV. As such, we would
define this as a positive rating factor. As it
would benefit the remaining shareholders
and likely increase the NAV of the fund.
REDEMPTION GATES
• Adopted: if weekly liquid assets fall
below 30% of the fund’s total assets,
fund board may suspend redemptions
for up to 10 business days in a 90 day
period.
• More a highlight to fund board powers.
Making it market knowledge.
• The impact could be negative because
the gate may be imposed for a
maximum of 10 days, which is beyond
the five business days outlined in the
current PSFR definitions.
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SEC’s MMF Reform – Floating the NAV impact on PSFRs
Private & Confidential 17
• We view a floating NAV as a neutral rating factor
• We expect to continue to apply our methodology as is
• We believe if required to float, fund managers will still likely aim to minimize share price
fluctuations. So, we could continue to apply our 0.25% deviation for the 'AAAm' rating.
$1.00 per share = $0.9975 to $1.0025
$10.00 per share = $9.975 to $10.025
$100.00 per share = $99.75 to $100.25
Example: DWS Variable NAV Money Fund, which we rated 'AAAm' in January 2012.
• This fund is a floating-NAV fund pegged at $10.00 per share
• Its objectives specify it follows all of the provisions of Rule 2a-7.
• We monitor whether the fund's NAV per share remains within the - 0.25% deviation
range for 'AAAm' rated funds.
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Summary of SEC’s MMF Reforms
Private & Confidential 18
The final rules had a tiered implementation period lasting up to 2 years from the
day rule was posted to the federal register, the last of week go into effect October
14, 2016.
Additional reforms around advanced disclosure became effective April 14, 2016.
Removal of References to Credit Ratings
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SEC MMF Reform: What has been the response?
Private & Confidential 19
Fund Complexes and LGIPs have responded in a few notable ways:
Consolidation (of funds and industry players)
Conversion to government funds
Changing/enhancing fund product lineups:
Conversion from PSFR to FCQR rating
Creating ‘private’ funds (‘Old 2a-7’ and ‘Old-Old 2a-7’)
Money market plus/enhanced cash funds
But where does that leave Local Government Investment Pools?
GASB Statement 79
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Changes in Regulation’s Impact on Local Government Investment Pools
Private & Confidential 20
• SEC has direct jurisdiction over registered funds, not LGIPs
• GASB rules apply for pools who elect to report pursuant to GASB standards
• External LGIPs were linked to SEC Rule 2a-7 (SEC Rule 2a-7 “like”) pursuant to GASB
Statement Nos. 31 (1997) and 59 (2010)
• But it was also mentioned in GASB Statement 72
o Statement 72 stated that generally, measuring investments fair value is preferable. However, if the pool
has elected to be deemed 2a7-like, then the pool has an exception from fair value measurements
because the amortized cost of investments in those pools closely follow the pricing of fair value.
• GASB issued Statement 79 (December 2015), to provide clarification to external LGIPs due
to the 2010 and 2014 SEC 2a-7 Rule update for registered money market funds
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Statement 79 - Certain External Investment Pools and Pool Participants (Published December 2015)
Private & Confidential 21
• Establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at
amortized cost for financial reporting purposes.
• Retroactive effectiveness for reporting periods after June 15, 2015 (except for provisions on portfolio quality, custodial
credit risk and shadow pricing, those are effective for reporting periods after December 15, 2015)
• External investment pools can elect to price their investments at amortized cost providing six criteria are met:
1. Transactions are a stable net asset value (NAV) $1.00 per share
2. Certain maturity requirements in the pool are met
o Maximum Weighted Average Maturity (WAM) = 60 days
o Maximum Weighted Average Life (WAL) = 120 days
o Maximum Final Maturity = 397 days
3. Certain quality requirements in the pool are met
o Denominated in US$ and rated by NRSRO in the highest short term category
o Allows for up to 3% in securities rated in second highest short term category if they were in highest short term category at time of purchase
4. Certain diversification requirements in the pool are met
o No more than 5% of assets in any one issuer (exposures to US Government are exempt and securities rated in the second highest short
term category limited to 0.5%)
o No more than 10% of assets exposes to any one credit support provider (exposures to US Government are exempt and credit support
providers rated in the second highest short term category limited to 2.5%)
5. Certain liquidity requirements in the pool are met
o At least 10% in daily liquid assets (Cash, securities maturing in one business day and all direct US Government obligations)
o At least 30% in weekly liquid assets (Cash, securities maturing in five business days and all direct US Government obligations)
6. Conduct shadow pricing on the pool at least once a month
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Impact of Money Market Fund Regulations
Private & Confidential 22
• Migration of assets out of prime funds into government funds
• Reduction in the number of funds in the universe
• Supply and demand imbalances for ‘prime’ investments (and government paper too)
• Impact on short term funding rates (LIBOR)
• Impact on financial institutions funding profile
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Review Trends in Libor, MMF Investments, Asset Flows
23Private & Confidential
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Private & Confidential 24
• The number of money funds tracked by Crane Data fell by 40 in the August to 998, the first time the number of MMFs has fallen below 1,000 in the 10 years Crane Data has been publishing.
• Over the past 12 months, 218 funds (or 18%) have been closed and Tax Exempt MMFs have declined by 35% (down 65 to 120) over this period.
1,3091,260 1,250
1,223
1,201 1,181 1,181
1,233 1,248 1,216 1,242
1,166
1,040 1,023
998
650
750
850
950
1,050
1,150
1,250
1,350
Source: Crane Data's Money Fund Intelligence.
Change in Number of US Money Market Funds
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Private & Confidential 25
• With just over a month to go until the SEC’s major Money Fund Reforms go live, Prime and Municipal outflows were hitting record levels. That trend continued through October 14.
• Funds continued to build and protect liquidity ahead of October 14, as WAMs also fell sharply as liquidity (WLAs) jumped in August.
• MMFs were originally created to give investors preservation of capital, liquidity, and yield but the rule changes have reduced the ability for investors to get to all three in one product, so the investor has to choose
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
Source: Crane Data's Money Fund Intelligence.
Money Fund Assets by Type ($M)
TREAS INSTIT MF GOVT INSTIT MF
PRIME INSTIT MF TREAS RETAIL MF
GOVT RETAIL MF TAX EX MMFs
Trends in MMF Assets
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Private & Confidential 26
0
10
20
30
40
50
60
06
/30
/06
09
/30
/06
12
/31
/06
03
/31
/07
06
/30
/07
09
/30
/07
12
/31
/07
03
/31
/08
06
/30
/08
09
/30
/08
12
/31
/08
3/3
1/0
9
6/3
0/0
9
9/3
0/0
9
12
/31
/09
3/3
1/1
0
6/3
0/1
0
9/3
0/1
0
12
/31
/10
3/3
1/1
1
6/3
0/1
1
9/3
0/1
1
12
/31
/11
3/3
1/1
2
6/3
0/1
2
9/3
0/1
2
12
/31
/12
3/3
1/1
3
6/3
0/1
3
9/3
0/1
3
12
/31
/13
3/3
1/1
4
6/3
0/1
4
9/3
0/1
4
12
/31
/14
3/3
1/1
5
6/3
0/1
5
9/3
0/1
5
12
/31
/15
3/3
1/1
6
6/3
0/1
6
Prime WAMs (days) Hit All-Time Lows
CRANE MONEY FUND AVERAGE CRANE 100 MONEY FUND INDEX
CRANE PRIME INST MF INDEX CRANE PRIME RETAIL MF INDEX
Trends in Prime MMFs Average Maturities
Source: Crane Data's Money Fund Intelligence.
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Private & Confidential 27
Trends in LIBOR (and SIFMA)
0.02%
0.40%
9/14/2016 0.70%
0.00%0.25%0.50%0.75%1.00%1.25%1.50%1.75%2.00%
8/2
0/2
01
4
9/2
0/2
01
4
10
/20
/20
14
11
/20
/20
14
12
/20
/20
14
1/2
0/2
01
5
2/2
0/2
01
5
3/2
0/2
01
5
4/2
0/2
01
5
5/2
0/2
01
5
6/2
0/2
01
5
7/2
0/2
01
5
8/2
0/2
01
5
9/2
0/2
01
5
10
/20
/20
15
11
/20
/20
15
12
/20
/20
15
1/2
0/2
01
6
2/2
0/2
01
6
3/2
0/2
01
6
4/2
0/2
01
6
5/2
0/2
01
6
6/2
0/2
01
6
7/2
0/2
01
6
8/2
0/2
01
6
SIFMA Municipal Swap Index
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Private & Confidential 28
Spread between Government, Treasury & Prime MMFs
0.00
0.05
0.10
0.15
0.20
0.25
0.30
CRANE TREAS INSTIT MF INDEX
CRANE GOVT INSTIT MF INDEX
CRANE PRIME INST MF INDEX
Source: Crane Data's Money Fund Intelligence.
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Deep Dive Into S&P Rated LGIPs
29Private & Confidential
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Investment Trends: Local Government Investment Pools
Private & Confidential 30
Source: Standard & Poor’s
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
20
40
60
80
100
120
140
Mar
-05
Jun
-05
Sep
-05
De
c-0
5M
ar-0
6Ju
n-0
6Se
p-0
6D
ec-
06
Mar
-07
Jun
-07
Sep
-07
De
c-0
7M
ar-0
8Ju
n-0
8Se
p-0
8D
ec-
08
Mar
-09
Jun
-09
Sep
-09
De
c-0
9M
ar-1
0Ju
n-1
0Se
p-1
0D
ec-
10
Mar
-11
Jun
-11
Sep
-11
De
c-1
1M
ar-1
2Ju
n-1
2Se
p-1
2D
ec-
12
Mar
-13
Jun
-13
Sep
-13
De
c-1
3M
ar-1
4Ju
n-1
4Se
p-1
4D
ec-
14
Mar
-15
Jun
-15
Sep
-15
De
c-1
5M
ar-1
6Ju
n-1
6
Bill
ion
s o
f U
S D
ola
lrs
S&P Rated LGIP Net Assets
Standard & Poor's LGIP Index/All ($) Standard & Poor's LGIP Index/Gen Purpose (%)
Standard & Poor's LGIP Index/Government (%)
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S&P Global Principal Stability Rated GIP Indices
Private & Confidential 31
S&P Rated GIP Index 1.61% 1.61% 1.86% 1.87% 43 $57.4
(Week Ended August 30, 2002) Billion
S&P Rated
Government Investment
Pool Indices
7 Day
NET
Yield %
30 Day
NET
Yield %
7 Day
GROSS
Yield %
WAM (R)
(Days)
S&P Rated GIP Index/ALL 0.43% 0.42% 0.59% 0.59% 41 71 $107.0
(Week Ended September 2, 2016) Billion
S&P Rated GIP Index/Government 0.27% 0.27% 0.41% 0.43% 38 77 $24.8
(Week Ended September 2, 2016) Billion
S&P Rated GIP Index/G.P. Taxable 0.46% 0.46% 0.63% 0.62% 42 70 $82.3
(Week Ended September 2, 2016) Billion
30 Day
GROSS
Yield %
Reported Weekly By Standard & Poor’s
Note: Indices comprised Of ‘AAAm’ Rated Government Investment Pools
To View In Bloomberg: LGIP <Index> <Go>
Total
Assets
WAM (F)
(Days)
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S&P Global’s Principal Stability Rated GIP Index – Quartile Rankings
Private & Confidential 32
7 Day 30 Day
Ranking Top Yield Low Yield Top Yield Low Yield
Gross Yields (%)
Top Quartile 0.76 0.64 0.76 0.64
Second Quartile 0.64 0.58 0.64 0.57
Third Quartile 0.58 0.47 0.57 0.44
Fourth Quartile 0.47 0.21 0.44 0.33
Net Yields (%)
Top Quartile 0.64 0.52 0.64 0.52
Second Quartile 0.52 0.38 0.52 0.38
Third Quartile 0.38 0.31 0.38 0.29
Fourth Quartile 0.31 0.04 0.29 0.03
(As of July 1, 2016)
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Investment Trends: Local Government Investment Pools
Private & Confidential 33
Source: Standard & Poor’s
0
10
20
30
40
50
60
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Mar
-05
Jun
-05
Sep
-05
De
c-0
5M
ar-0
6Ju
n-0
6Se
p-0
6D
ec-
06
Mar
-07
Jun
-07
Sep
-07
De
c-0
7M
ar-0
8Ju
n-0
8Se
p-0
8D
ec-
08
Mar
-09
Jun
-09
Sep
-09
De
c-0
9M
ar-1
0Ju
n-1
0Se
p-1
0D
ec-
10
Mar
-11
Jun
-11
Sep
-11
De
c-1
1M
ar-1
2Ju
n-1
2Se
p-1
2D
ec-
12
Mar
-13
Jun
-13
Sep
-13
De
c-1
3M
ar-1
4Ju
n-1
4Se
p-1
4D
ec-
14
Mar
-15
Jun
-15
Sep
-15
De
c-1
5M
ar-1
6Ju
n-1
6
We
igh
ted
Ave
rage
Mat
uri
ty
7 D
ay N
et
Yie
ld
S&P Rated LGIP Index Yield and WAM(R)
Standard & Poor's LGIP Index Yield/All Standard & Poor's LGIP Index WAM(R)/All
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Portfolio Composition of AAAm Rated LGIPs (PSFR)
Private & Confidential 34
Agency44.41%
Bank Deposits16.22%Money Market
Fund0.61%
Treasury14.88%
Repurchase Agreements
23.89%
S&P Rated GIP Index/Government
Agency25.56%
Asset Backed Securities
5.34%Bank Deposits
23.83%
Commercial Paper
19.58%
Corporate4.73%
Money Market Fund5.30%
Municipal Debt0.35%
Treasury5.37%
Repurchase Agreements
9.94%
S&P Rated GIP Index/All
Agency21.55% Asset Backed
Securities6.48%
Bank Deposits25.45%
Commercial Paper
23.74%
Corporate5.74%
Money Market Fund6.30%
Municipal Dept.42%
Treasury3.34%
Repurchase Agreements
6.97%
S&P Rated GIP Index/General Purpose Taxable
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Proposed Changes to our FCQR & FVR Methodologies
Private & Confidential 35
• On September 26, 2016 we published two Request for Comments (RFCs) on proposed
changes to our FCQR & FVR Methodologies
• Two main objectives for our proposed changes to the existing criteria:
1. To update the credit quality matrix to reflect long and short-term rating default
statistics aggregated since 2007and
2. To clarify and make more transparent the analysis and application of the qualitative
assessments.
• Six week comment period for market to provide feedback on our proposal.
• Upon completion of the comment period, we will review responses and evaluate whether to
make any changes to the proposals and then we will publish criteria.
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Appendix
Private & Confidential 36
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Principal Stability Fund Ratings (PSFRs)
Private & Confidential 37
• Assigned to funds whose investment policies are consistent with providing a stable or
accumulating NAV (i.e. 2a-7 $1.00 NAV funds)
max WAM to Reset 60 days (AAAm)
max WAM to Final 90-120 days (AAAm)
max final maturity 397 days (fixed rate)
high credit quality
highly diversified (issuers, counterparties, etc.)
• Each rating category corresponds with a NAV range.
For example, a fund can maintain a 'AAAm' rating so long as its marked-to-market
per-share NAV does not deviate more than - 0.25%.
• AAAm - 0.25%
• AAm - 0.30%
• Am - 0.35%
• BBBm - 0.40%
• BBm - 0.50%
• Dm > - 0.50%
For all funds (regardless of rating), daily portfolio pricing, marked-to-market NAV
calculations, and stress testing are monitored when NAV goes beyond +/- 0.15%
deviation.
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Principal Stability Fund Ratings Definitions (Effective January 5, 2010)
Private & Confidential 38
• A Standard & Poor's Ratings Services principal stability fund rating, also known as
a "money market fund rating," is a forward-looking opinion about a fixed income
fund's capacity to maintain stable principal (net asset value). When assigning a principal
stability rating to a fund, our analysis focuses primarily on the creditworthiness of the fund's
investments and counterparties, and also its investments’ maturity structure and management's ability
and policies to maintain the fund's stable net asset value. Principal stability fund ratings are assigned
to funds that seek to maintain a stable or an accumulating net asset value.
• Generally, when faced with an unanticipated level of redemption requests during periods of high
market stress, the manager of any fund may suspend redemptions for up to five business days or meet
redemption requests with payments in-kind in lieu of cash. A temporary suspension of
redemptions or meeting redemption requests with distributions in-kind does not
constitute a failure to maintain stable net asset values. However, higher rated funds are
expected to have stronger capacities to pay investor redemptions in cash during times of high market
stress because they generally comprise shorter maturity and higher quality investments.
• Principal stability fund ratings, or money market fund ratings, are identified by the
'm' suffix (e.g., ‘AAAm’) to distinguish the principal stability rating from a Standard & Poor's
traditional issue or issuer credit rating. A traditional issue or issuer credit rating reflects Standard &
Poor’s view of a borrower’s ability to meet its financial obligations. Principal stability fund ratings are
not commentaries on yield levels.
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Principal Stability Fund Ratings Definitions
Private & Confidential 39
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PSFR Summary Framework: Key Areas of Assessment
Private & Confidential 40
MaturityNet Asset Value (NAV) Stability
LiquidityDiversificationCredit Quality
Preliminary PSFR
(initial rating level)
Management –
Credit Research
and Analysis
Management –
Stress
Testing/Internal
Controls
Management –
Pricing
Management –
Breaches
Management –
Experience
Final PSFR
(final rating level)
Zero to Four Categories of Downward Adjustment
Qualitative
Quantitative
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Surveillance (Monitoring) of Fund Ratings
Private & Confidential 41
• Dedicated Staff of Surveillance Analysts & Proprietary System (MFDB)
• Portfolio Holdings, Cash Flows & Risk Parameters are reviewed:
Weekly for PSFRs
Monthly for FCQR & FVRs
• Portfolio Level & Security Level Analysis
portfolio maturity
credit quality
illiquid and market sensitive securities
sector allocations
variable / floating rate instruments
net asset value (pricing) fluctuations
Comparison of CDS vs. current ratings
Highest yielding fund analysis
• Internal Monthly Surveillance Meetings to Review Material Events
• Frequent Communication with Fund Management
• Annual On-Site Management Review Meeting
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PSFR Sensitivity Matrix
Private & Confidential 42
WAM (R) 60 Copyright© 2010 by Standard & Poor’s Financial Services LLC (S&P) a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved.
WAM (F) 120
Shares Outstanding: 501,000,000.00
Total Fund Assets: 500,248,500.00
Market Value (NAV): 0.998500
Credit Spread Movement (bps): 50
% Total Credit (Non Gov't) Securities (of portfolio) 25%
% Corporate Floaters (of portfolio) 15%
Total $ Loss: ($751,500)
Total $ Gain: $0
Basis Point Shift Selected Shareholders
Largest Redemption
over 5 consecutive
business days Gain (Loss)
300 0.992310 0.991220 0.991550 0.992489 0.992884 0.993240 0.993562 0.994366 (3,386,897)
250 0.993245 0.992288 0.992577 0.993402 0.993749 0.994062 0.994344 0.995051 (2,975,116)
200 0.994180 0.993355 0.993604 0.994315 0.994614 0.994884 0.995127 0.995736 (2,563,336)
175 0.994648 0.993889 0.994118 0.994772 0.995047 0.995295 0.995519 0.996079 (2,357,445)
150 0.995115 0.994423 0.994632 0.995228 0.995479 0.995705 0.995910 0.996421 (2,151,555)
125 0.995583 0.994956 0.995146 0.995685 0.995912 0.996116 0.996301 0.996764 (1,945,664)
100 0.996050 0.995490 0.995659 0.996142 0.996345 0.996527 0.996693 0.997106 (1,739,774)
75 0.996517 0.996024 0.996173 0.996598 0.996777 0.996938 0.997084 0.997449 (1,533,884)
50 0.996985 0.996558 0.996687 0.997055 0.997210 0.997349 0.997476 0.997791 (1,327,993)
25 0.997452 0.997091 0.997200 0.997511 0.997642 0.997760 0.997867 0.998134 (1,122,103)
0 0.997920 0.997625 0.997714 0.997968 0.998075 0.998171 0.998258 0.998476 (916,212)
-25 0.998387 0.998159 0.998228 0.998425 0.998508 0.998582 0.998650 0.998818 (710,322)
-50 0.998855 0.998692 0.998741 0.998881 0.998940 0.998993 0.999041 0.999161 (504,432)
-75 0.999322 0.999226 0.999255 0.999338 0.999373 0.999404 0.999432 0.999503 (298,541)
-100 0.999790 0.999760 0.999769 0.999795 0.999805 0.999815 0.999824 0.999846 (92,651)
-125 1.000257 1.000294 1.000283 1.000251 1.000238 1.000226 1.000215 1.000188 113,240
-150 1.000725 1.000827 1.000796 1.000708 1.000671 1.000637 1.000607 1.000531 319,130
-175 1.001192 1.001361 1.001310 1.001164 1.001103 1.001048 1.000998 1.000873 525,021
-200 1.001659 1.001895 1.001824 1.001621 1.001536 1.001459 1.001389 1.001216 730,911
-250 1.002594 1.002962 1.002851 1.002534 1.002401 1.002281 1.002172 1.001901 1,142,692
-300 1.003529 1.004030 1.003878 1.003447 1.003266 1.003103 1.002955 1.002586 1,554,473
Redemptions/Subscriptions -12% -23% -20% -10% -5% 0% 5% 20%
Shares Outstanding 440,444,861 385,770,000 400,800,000 450,900,000 475,950,000 501,000,000 526,050,000 601,200,000
Shift Upon NAV = NAV - (WAM/365) * (Bp/10,000)
Dilution Upon NAV= (NAV + Change) / (1+ Change)
FILL IN/ADJUST AREAS SHADED GREEN TO RUN SCENARIOS
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PSFR Sensitivity Matrix
Private & Confidential 43
Top 10 Shareholders % of Fund
Stress
Redemption Largest Five Day Redemption (%) 23%
Shareholder 1 50,000,000.00$ 10.00% No
Shareholder 2 40,444,200.00$ 8.08% Yes
Shareholder 3 38,456,871.00$ 7.69% No
Shareholder 4 15,067,896.00$ 3.01% No
Shareholder 5 12,456,985.00$ 2.49% Yes
Shareholder 6 10,871,596.00$ 2.17% No
Shareholder 7 9,875,645.00$ 1.97% No
Shareholder 8 7,563,121.00$ 1.51% Yes
Shareholder 9 5,312,879.00$ 1.06% No
Shareholder 10 3,215,468.00$ 0.64% No
Stress Top 10 193,264,661.00$ 38.63% No
Total Fund Assets 500,248,500.00$ 100% 60,464,306.00
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Thank you
Guyna Johnson
Director
Standard & Poor’s Ratings Services
130 E. Randolph Street, 36th Floor
Chicago, IL 60601
P (312) 233-7008
C (312) 636-4905
44
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45Private & Confidential