Louisiana Asset Guyna G. Johnson Management Pool, Inc. · FL SAFE Stable NAV Fund AAAm 12/20/2007 Non-Gov't Entity FL ... Orange County Educational Money Market Fund AAAm 12/1/2008

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Louisiana Asset Management Pool, Inc.

Guyna G. Johnson

Director

S&P Global Ratings

Copyright © 2018 by S&P Global.

All rights reserved.2018 Annual Meeting -– October 26, 2018


Private & Confidential 2

Presentation Objectives/Agenda

• Background on S&P Fund Ratings

• Key Elements of S&P PSFR Criteria:

• How to Determine an S&P Fund Rating

• Recent Trends in the MMF Industry

• Deep Dive into S&P Rated LGIPs

• Noteworthy Industry Topics

• Appendix (FCQR/FVR Criteria)


Background on S&P Fund Ratings



Overview of S&P Global Fund Ratings


• 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 600 “funds” globally, from over 175

fund sponsors:

o 400+ Principal Stability Fund Ratings – Money Market Funds

o 200+ Fund Credit Quality and Volatility Rated funds – Fixed Income Funds

o Includes 80+ Local Government Investment Pools

o Includes Approximately 65 Liquidity Assessments


Types of Ratings We Provide


1. Principal Stability Fund Ratings (PSFRs) – Globally 400+ funds with AUM over US$2.5

trillion, with the majority located in the US, followed by Europe, and the remainder located

in 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 200+ funds

• Fund Credit Quality Ratings (FCQRs) is a forward-looking opinion about the

overall credit quality of a fixed-income investment fund

o Represented by ‘f’ suffix after the traditional rating symbol (AAAf)

• A Fund Volatility Ratings (FVR) is a forward-looking opinion about a fixed-income

investment fund's volatility of returns relative to that of a "reference index"

denominated in the base currency of the fund

o Represented by ‘S’ scale (S1, S2, etc.); added in 1994 to complement FCQRs


What do S&P ratings indicate?


A S&P Principal Stability Fund Rating Is…

• An opinion on relative safety of invested

principal.

• An indication of the extent to which a

portfolio is comprised of high credit quality

instruments.

• A weekly review of the investment holdings

and key fund statistics including but not

limited to NAV, WAM and asset flows.

• An indication of the extent to which a fund

provides principal stability.

• An independent, third party review of

management’s experience, operations and

controls.

A S&P Principal Stability Fund Rating Is NOT…

• A guarantee.

• An indication of the willingness and/or ability of

sponsor to provide support.

• A comment on the yield or performance.

• An indication investments are risk free.

• Impacted by fund management’s decision to

make payments in kind versus cash.

• Impacted by a fund management’s decision to

suspend redemptions (i.e. do not guarantee daily

liquidity).


The Rating Process


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.


Surveillance (Monitoring) of Fund Ratings


• 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

• Review of Underlying Shareholder Concentration and Liquidity Adequacy


Sample of Surveillance Summary Information



List of S&P Rated LGIPs Under PSFR Criteria


Pool Name Rating 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 3/28/1995 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 Statewide Investment Pool - CSIP Liquid Portfolio AAAm 5/19/2017 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

FL SAFE Stable NAV Fund AAAm 12/20/2007 Non-Gov't Entity FL

Florida Cooperative Liquid Assets Securities 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

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

Iowa Public Agency Investment Trust - Diversified Portfolio AAAm 6/1/2016 Non-Gov't Entity IA

Local Government Investment Cooperative AAAm 2/8/2006 Non-Gov't Entity TX

Lone Star Investment Pool - Corporate Overnight Fund AAAm 8/21/1995 Non-Gov't Entity TX

Lone Star Investment Pool - Government Overnight Fund AAAm 8/21/1995 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 10/8/1991 Non-Gov't Entity MA

Michigan Cooperative Liquid Assets Securities System AAAm 3/10/2009 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

Missouri Securities Investment Program -Liquid Series AAAm 11/13/1997 Non-Gov't Entity MO

MNTrust - Investment Shares AAAm 2/1/2011 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

S&P Global Ratings - Local Government Investment Pools (As Of August 2018)


List of S&P Rated LGIPs Under PSFR Criteria cont.



New Jersey Asset & Rebate Management Program/Joint Account AAAm 2/13/1991 Non-Gov't Entity NJ

New Mexico Local Government Investment Pool AAAm 8/14/2006 Gov't Entity NM

New York Cooperative Liquid Assets Securities System AAAm 3/10/2009 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 School District Liquid Asset Fund - Government Transparency Series AAAm 7/8/2016 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 - Max Series AAAm 11/13/1997 Non-Gov't Entity PA

State Treasury Asset Reserve of Ohio (STAR OHIO) AAAm 7/10/1995 Gov't Entity OH

Texas Cooperative Liquid Assets Securities System AAAm 3/10/2009 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

VACo/VML Virginia Investment Pool (VIP) Stable NAV Liquidity Pool AAAm 10/27/2016 Gov't Entity VA

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)



List of S&P Rated LGIPs Under FCQR/FVR Criteria



Arizona LGIP Pool 5 AAAf S1+ 11/10/2008 Gov't Entity AZ

CalTRUST Medium Term Fund A+f 12/6/2016 Non-Gov't Entity CA

CalTRUST Short Term Fund AAf S1+ 8/29/2006 Non-Gov't Entity CA

City of Anaheim Treasurer Investment Pool AA+f S1 7/7/2008 Gov't Entity & Non-Gov't Entity CA

City of Long Beach California Investment Pool AAf S1 11/14/2000 Gov't Entity & Non-Gov't Entity CA

Contra Costa County Investment Pool AAAf S1+ 11/19/2007 Gov't Entity & Non-Gov't Entity CA

FL SAFE Variable NAV Fund AAAf S1 10/17/2017 Non-Gov't Entity FL

Florida Fixed Income Trust 1-3 Year Fund AA+f S1 4/28/2015 Non-Gov't Entity FL

Florida Fixed Income Trust: Commercial Paper Pool AAAf S1+ 6/30/2016 Non-Gov't Entity FL

Florida Fixed Income Trust: Enhance Cash Portfolio AAAf S1 6/30/2016 Non-Gov't Entity FL

Florida Treasury Investment Pool A+f S2 12/10/2003 Non-Gov't Entity FL

Georgia Fund 1 AAAf S1+ 6/19/1995 Gov't Entity GA

Hillsborough County Investment Pool AAAf S1 3/31/2008 Gov't Entity & Non-Gov't Entity FL

Liquidity Fund of the Treasury of the State of Ohio AAAf S1+ 4/26/2017 Gov't Entity OH

Lone Star Investment Pool - Corporate Overnight Plus Fund AAAf S1+ 5/20/1999 Non-Gov't Entity TX

Sarasota County Investment Pool AAf S1 9/30/2008 Gov't Entity FL

State of Texas Treasury Pool AAAf S1 4/29/2002 Gov't Entity TX

VACo/VML Virginia Investment Pool (VIP) 1-3 Year High Quality Bond Fund AAf S1 1/23/2014 Gov't Entity VA

Ventura County Treasury Portfolio AAAf S1+ 6/5/1996 Gov't Entity CA

Virginia Local Government Investment Pool EM AAAf S1 7/20/2017 Gov't Entity VA

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)



Summary of Main Differences Amongst ‘m’ & ‘f’ ratings


Principal Stability Fund Ratings; aka Money Market

Fund Ratings (eg. ‘AAAm’)

Fund Credit Quality & Volatility Ratings; aka Bond

Fund Ratings

(eg. ‘AAAf/S1’)

Eligible

Investments

(According to

Rating)

The criteria states an issuer must have a short term rating

of at least ‘A-1’ (A-2 counterparty rating for overnight

repo). If it is not rated by S&P but has the highest short-

term rating of another NRSRO, it must either be backed

by a highly rated LOC provider, or have an S&P long term

rating of at least ‘AA’.

The securities must be rated by S&P or another NRSRO. If

it is unrated by S&P, certain notching rules may apply.

Ratings

Breakdown

For ‘AAAm’ rated funds, at least 50% must be in ‘A-1+’,

with the other 50% in ‘A-1’ securities. For ‘AAm’ funds,

20% is required in ‘A-1+’, with the other 80% in ‘A-1’

securities. For ‘Am’ funds, 100% may be in ‘A-1’. (A-1

amounts include up to 10% in repo with A2 rated

counterparties)

There is no minimum requirement, but the outcome of the

rating will be dependent on our “ratings matrix.” The Fund

Credit Quality Ratings Matrix takes into account the rating

on the security (long term or short term), the maturity (< =

31 days, > 31 but < = 92 days, > 92 but < = 365 days, >

365 days), and the percentage held by the fund in each

security.

Types of

Securities

Common security types are Repurchase Agreements,

Fixed and Floating Corporate Bonds, Commercial Paper,

Certificates of Deposits, U.S. Treasury Securities, U.S.

Agency Securities, etc.

Common security types are Fixed and Floating Rate

Corporate Bonds, Commercial Paper, Certificates of

Deposits, U.S. Treasuries, U.S. Agencies, Municipal

Bonds, Mortgage Backed Securities, etc.

Reporting

FrequencyFund must submit weekly surveillance. Fund must submit monthly surveillance.

NAV

Shares typically exchanged at $1.00 per share. While this

may give the impression, NAVs do not move, they can

and do. We monitor these funds to make sure any

movements don’t trigger paying investors less than $1.00

per share (typically look for less than 0.15% deviation)

Shares typically exchange at $10.00 per share although

some may have $2.00 $0.50 and some even $1.00 per

share. No explicit thresholds on share price deviation but

fluctuations in the NAV may impact the fund volatility rating.

Weighted

Average Maturity

(WAM)

Guidelines

‘AAAm’ - 60 days, ‘AAm’ - 75 days, ‘Am’ and ‘BBBm’ - 90

days

There is no WAM limit, but the longer the maturity dates,

the more likely it is that the security will contribute to a

lower rating. In addition the longer the duration, the more

likely the fund volatility rating will be higher.


Key Elements of S&P’s PSFR Criteria



Principal Stability Fund Ratings Definitions



PSFR Summary Framework: Key Areas of Assessment


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


Key Criteria Elements – Principal Stability Fund Rating (MMF)


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


Cure Periods for PSFR Criteria Breaches


Metric/Threshold Category Cure Period*

NAV Up to 5 business days

Downgrades below ‘A-1’

% of portfolio

≤0.5% = 397 calendar days

>0.5% ≤ 1.0% = 120* calendar days

>1.0% ≤ 5.0% = 60* calendar days

>5% = 14 calendar days

* Regardless of the short-term rating, if the long-term rating is 'BBB+' and on CreditWatch

negative or 'BBB' or lower, the cure period drops to seven calendar days.

Maturity 20 business days

10% illiquid/limited liquidity bucket 20 business days

Diversification 20 business days

Overall Credit Quality

(i.e., 50% maximum in A-1)

10 business days

* NOTE: The cure period related to a breach applies only to that specific metric/threshold and to no others and

begins on the date the breach occurs. All cure periods are based on a fund's NAV remaining within the ranges

outlined for each rating category (i.e., AAAm - 0.25%)


Recent Trends in MMF Industry:

Asset Flows, Spreads, and Maturities




Source: Crane Data


1238 12471216

11831161

1054

998970 982 997

976956 957 964 970

650

750

850

950

1050

1150

1250

1350

Number of Money Market Funds


• The number of money funds tracked by Crane Data fell to 998 in August 2016, the first time the number of MMFs

has fallen below 1,000 in the 10 years Crane Data has been publishing.

• The decrease in the number of money market funds are primarily caused by Prime and Tax-Exempt funds

consolidating and/or closing.

• The number of money market funds jumped back up to nearly 1000 in May of 2017 due to the addition of ~20

Treasury/Government funds before again declining due to removal of ~50 Tax Exempt funds

Source: Crane Data's Money Fund Intelligence

Change in Number of US Money Market Funds



• 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

• The Crane Prime Institutional Money Fund Index has increased its assets 17.4% in the last 12 months. The

asset increase is attributed to yield spreads widening

Trends in MMF Assets


-

200,000.00

400,000.00

600,000.00

800,000.00

1,000,000.00

1,200,000.00

CRANE TREAS INSTIT MF INDEX CRANE GOVT INSTIT MF INDEX CRANE PRIME INST MF INDEX



Spread between Government, Treasury, & Prime MMFs


-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

2/28/15 5/31/15 8/31/15 11/30/15 2/29/16 5/31/16 8/31/16 11/30/16 2/28/17 5/31/17 8/31/17 11/30/17 2/28/18 5/31/18 8/31/18

CRANE TREAS INSTIT MF INDEX CRANE GOVT INSTIT MF INDEX CRANE PRIME INST MF INDEX

• Yields continue to respond quickly to FOMC actions. As rates have increased, spreads have given opportunities for

investors to gain additional yield.


Maturity Exposures


05

1015202530354045

Day

s

WAM (Days)

CRANE PRIME INST MF INDEX CRANE GOVT INSTIT MF INDEX

CRANE TAX EXEMPT INDEX

0

20

40

60

80

100

120

Day

s

WAL (Days)

CRANE PRIME INST MF INDEX CRANE GOVT INSTIT MF INDEX

CRANE TAX EXEMPT INDEX

Source: Crane

• Prime money market funds’ WAM/WAL were significantly shortened leading up to 2a-7 reform in Oct. 2016 but have since

normalized.

• As interest rates continue to rise, funds have been managing duration risk by shortening its WAM.


Deep Dive Into S&P Rated LGIPs



Investment Trends: Local Government Investment Pools


Source: Standard & Poor’s

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0

20

40

60

80

100

120

140

160

Au

g-0

5

Feb

-06

Au

g-0

6

Feb

-07

Au

g-0

7

Feb

-08

Au

g-0

8

Feb

-09

Au

g-0

9

Feb

-10

Au

g-1

0

Feb

-11

Au

g-1

1

Feb

-12

Au

g-1

2

Feb

-13

Au

g-1

3

Feb

-14

Au

g-1

4

Feb

-15

Au

g-1

5

Feb

-16

Au

g-1

6

Feb

-17

Au

g-1

7

Feb

-18

Au

g-1

8

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 (%)


Investment Trends: Local Government Investment Pools


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%

Au

g-0

5

Feb

-06

Au

g-0

6

Feb

-07

Au

g-0

7

Feb

-08

Au

g-0

8

Feb

-09

Au

g-0

9

Feb

-10

Au

g-1

0

Feb

-11

Au

g-1

1

Feb

-12

Au

g-1

2

Feb

-13

Au

g-1

3

Feb

-14

Au

g-1

4

Feb

-15

Au

g-1

5

Feb

-16

Au

g-1

6

Feb

-17

Au

g-1

7

Feb

-18

Au

g-1

8

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 - 7 Day Net Yield Standard & Poor's LGIP Index WAM(R)/All


S&P Global Principal Stability Rated GIP Indices


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 1.98% 1.97% 2.16% 2.14% 34 66 $146.1


S&P Rated GIP Index/Government 1.84% 1.82% 2.01% 2.01% 27 75 $32.1


S&P Rated GIP Index/G.P. Taxable 2.02% 2.00% 2.19% 2.18% 36 64 $114.0


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)


S&P Global’s Principal Stability Rated GIP Index – Quartile Rankings


7 Day 30 Day

Ranking Top Yield Low Yield Top Yield Low Yield

Gross Yields (%)

Top Quartile 2.29 2.22 2.25 2.17

Second Quartile 2.22 2.15 2.17 2.10

Third Quartile 2.15 2.00 2.10 1.93

Fourth Quartile 2.00 1.80 1.93 1.54

Net Yields (%)

Top Quartile 2.19 2.07 2.14 2.00

Second Quartile 2.07 1.92 2.00 1.88

Third Quartile 1.92 1.81 1.88 1.74

Fourth Quartile 1.81 1.36 1.74 1.30

(As of June 29, 2018)


Noteworthy Industry Topics




• Interest Rate Policy

• Rates began to rise in December 2015

• FOMC raised rates three times in 2017 and seven times in three years

thus far

• Fed is expected to raise rates three-four times in 2018

• Investor sentiment towards Prime MMFs – Possible shift back?

• Rising rates should lead to added yield opportunities for MMF

shareholders

• We have noted minimal fluctuations with Prime Fund NAVs

• Supply and demand imbalances in money markets have produced wider

spread levels between prime and gov. MMFs

• Developments on Benchmark Reform

• Secured Overnight Financing Rate (SOFR) designated to replace USD

LIBOR

• LIBOR expected to remain till end of 2021

• SOFR is transaction based vs. the LIBORs current ‘expert judgement’

• LIBOR currently used as benchmark rate for over $350 trillion ranging

across multiple investment products according to ICE Benchmark

Administration



SOFR Issuances

• Nearly $10 billion of bonds tied to the Secured Overnight Financing Rate (SOFR) have been issued.

• To eliminate index risk, the bonds use daily reset periods.

Source: Bloomberg, Capital IQ, S&P Global Ratings

Issuer Issue Date Maturity Tenor Size (millions)

Pricing

(SOFR +

spread)

Industry S&P Rating

Fannie Mae 7/30/2018 1/30/2019 6 Months 2,500.00 +8 bps Government Agencies AA+



World Bank 8/21/2018 8/21/2020 24 Months 1,000.00 +22 bps Supranationals AAA

Credit Suisse 8/21/2018 2/21/2019 6 Months 100.00 +35 bps Banks A

Sheffield Receivables Corp 8/24/2018 11/28/2018 3 Months 525.00 +35 bps ABCP A-1

Metropolitan Life Global Funding I 9/7/2018 9/7/2020 24 Months 1,000.00 +57 bps Life Insurance AA-

Wells Fargo Bank, NA 9/21/2018 9/20/2019 12 Months 125.00 +35 bps Banks A+

Wells Fargo Bank, NA 9/25/2018 3/25/2020 18 Months 1,000.00 +48 bps Banks A+

Tribourough Bridge & Tunnel Authority 9/26/2018 9/26/2019* 12 Months 107.28 +43 bps** Municipal AA-

*Soft put date

**SOFR x 0.67 + 0.43 bps

Benchmark Min Max Avg Libor - SOFR

SOFR 1.65 2.12 1.84 -

Libor 1m 1.88 2.22 2.03 0.188943237

Libor 3m 2.30 2.37 2.34 0.493432313

*Comparison of benchmarks since SOFR's official publication on April 2, 2018


Across the Pond – European MMF Reform


• Rules were approved on May 16, 2017 by the European Council

• Took effect on July 21, 2018

• Transition for full compliance will be January 21, 2019

• Two types of Funds Short-Term MMFs and Standard MMFs

• Short-Term MMFs (CNAV, LVNAV, VNAV)

• Standard MMFs (VNAV)

• We view the new rules as a positive development for the industry

• Increased Transparency

• Enhanced liquidity

• Focused on Investor Protection

• New rues will likely create a more homogenous MMF landscape

- May lead to consolidation/merger activity

- We could see reduced competition in the market place

• We do not anticipate material rating changes resulting from the new rules as our

criteria is generally more conservative than the newly imposed rules.


Appendix



Key Elements of S&P’s FCQR Criteria



Fund Credit Quality Rating- What is a FCQR?

An S&P Global Fund Credit Quality Rating, also known as a “bond fund rating,” is a

forward-looking opinion about the overall credit quality of a fixed-income investment fund.

The ratings reflect the credit quality risks of the portfolio investments and counterparty

exposures, and the risk of the fund manager’s ability and willingness to maintain current

fund credit quality.

Fund credit quality ratings are identified by the 'f' subscript (e.g. ‘AAAf’) to distinguish them

from Standard & Poor’s issue or issuer credit ratings. Unlike traditional credit ratings (e.g.,

issuer credit ratings) that we assign to debt issued by an issuer, a fund credit quality rating

does not address a fund’s ability to meet “payment obligations”.

We assign Fund Credit Quality Ratings to bond funds and other managed pools of fixed-

income assets, including cash-enhanced funds, exchange traded funds (ETFs), fixed-

income hedge funds, local government investment pools, unit investment trusts, and

preferred shares trusts.

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Fund Credit Quality Ratings Definitions

Category* Definition

AAAf The credit quality of the fund's portfolio exposure is extremely strong.

AAf The credit quality of the fund's portfolio exposure is very strong.

Af The credit quality of the fund's portfolio exposure is strong.

BBBf The credit quality of the fund's portfolio exposure is adequate.

BBf The credit quality of the fund's portfolio exposure is weak.

Bf The credit quality of the fund's portfolio exposure is very weak.

CCCf The credit quality of the fund's portfolio exposure is extremely weak.

CCfThe fund’s portfolio has significant exposure to defaulted or near defaulted assets and/or counterparties.

Df The fund’s portfolio is predominantly exposed to defaulted assets and/or counterparties.

* The ratings from 'AAf' to 'CCCf' may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.


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Summary of FCQR Methodology

Fund Credit Quality matrix

• Factors are all positive (non-zero) and derived for modified

rating levels (e.g. ‘AA+’, ‘AA-‘, ‘A+, ‘A-‘, etc.)

• Factors applied to assets rated ‘CCC-‘ or lower including in

the ‘CC’, ‘C’, and ‘D’ categories

• Thresholds adjusted

• Maturity buckets expanded from 3 to 4 (bucket added for

securities maturing within 1 month.

Determining FCQR in 4 Steps

• The quantitative assessment determines the preliminary

FCQR

• Management and portfolio risk assessments modify

preliminary FCQR

• Final FCQR is determined after applying a one notch

adjustment for comparable ratings analysis, if warranted.

Criteria Item: Impact For FCQR:

Qualitative Assessment

• Assess Management and Organization, Risk Management

& Compliance, Credit Culture, and Credit Research as

“strong”, “adequate”, or “weak”. FCQR is lower than the

preliminary FCQR if any are weak.


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Summary of FCQR Methodology

Credit Quality• We determine and apply rating inputs when a Standard &

Poor’s rating has not been assigned to an issue, issuer, or

counterparty

Counterparties/Derivatives/

Certificates of Deposit• Clarification on how each considered in the qualitative and

quantitative assessment

Criteria Item: Impact For FCQR:

Portfolio Risk Assessment &

Sensitivity Tests

• Assess Concentration Risk, Counterparty Risk, Liquidity,

and Fund Rating cushion.

• Sensitivity tests performed if Portfolio Risk Assessment is

negative provide forward looking portfolio stress analysis

Breaches & Cure Periods

• Thresholds established for ‘active’ breaches and introduce

the concept that persistent ‘passive’ breaches (i.e. FCQR

scores that no longer support the preliminary assigned

FCQR), even if repeatedly cured, results in downgrade of

the FCQR


Key Elements of S&P’s FVR Criteria



• An S&P Global Fund Volatility Rating is a forward-looking opinion about a fixed-income

investment fund's volatility of returns relative to the risk of a portfolio composed of

government securities and denominated in the base currency of the fund. Fund volatility

ratings are not globally comparable.

• Fund volatility ratings provide regional and domestic markets with our opinion of the likelihood

of a fund to exhibit volatility of returns as compared to returns of regional or domestic

government securities.

• Volatility ratings reflect S&P Global Ratings' view of the fund's sensitivity to interest rate risk,

credit risk, and liquidity risk, as well as other factors that may impact a fund’s returns such as

investment diversification, leverage, management, and other factors.

• FVRs typically accompany fund credit quality ratings (e.g., 'Af/S3') to communicate our

opinion of risks not addressed by fund credit quality ratings (FCQRs). For some funds, we

may assign an FCQR without an accompanying FVR. For example, this could occur for new

funds with insufficient track records, which limits our ability to assess volatility of returns.

When this occurs, we note the FVR as NR (not rated).


Fund Volatility Rating- What is a FVR?



Fund Volatility Rating - Scale & DefinitionsCategory* Definition

S1

Funds that exhibit low volatility of returns comparable to a portfolio of short duration government securities, typically maturing within one to three years and denominated in the base currency of the fund, are rated S1.

Within this category, certain funds are designated with a plus sign (+). This indicates the fund's extremely low volatility of monthly returns compared to a portfolio of short duration government securities representing highest quality fixed-income instruments available in each country or currency zone with a maturity of 12 months or less. In the absence of short duration government securities in a given country or currency zone, the volatility of one year bank deposit rates denominated in the base currency of the fund and offered by commercial banks will be used as a benchmark proxy for S1+ rated funds.

S2Funds that exhibit low to moderate volatility of returns comparable to a portfolio of short to medium duration government securities, typically maturing within three to seven years and denominated in the base currency of the fund, are rated S2.

S3Funds that exhibit moderate volatility of returns comparable to a portfolio of medium to long duration government securities, typically maturing within seven to 10 years and denominated in the base currency of the fund, are rated S3.

S4Funds that exhibit moderate to high volatility of returns comparable to a portfolio of long duration government securities, typically maturing beyond 10 years and denominated in the base currency of the fund, are rated S4.

S5

Funds that exhibit high to very high volatility of returns comparable to a portfolio of long duration government securities, typically maturing beyond 10 years and denominated in the base currency of the fund, are rated S5. These funds may be exposed to a variety of significant portfolio risks such as high concentration risks, high leverage, and investments in complex structured and/or illiquid securities.


43

Summary of FVR Methodology

Clarify the Quantitative

Assessment• Statistical comparison of the fund’s historical returns to

those of a reference index

Determining FVR in 4 Steps

• The quantitative assessment determines the preliminary

FVR

• Portfolio risk and Management assessments modify

preliminary FVR

• Final FVR is determined after applying a one notch

adjustment for comparable ratings analysis, if warranted.

Criteria Item: Impact For FVR:

Qualitative Assessment

• Assess Management and Organization, Risk Management

& Compliance, Credit Culture, and Credit Research as

“strong”, “adequate”, or “weak”. FVR is lower than the

preliminary FVR if any are weak.

Portfolio Risk Assessment • Assess Duration, Credit Exposure, Liquidity, Derivatives,

Leverage, Foreign Currency & Concentration


44

Summary of FVR Methodology

FVR Scale • The FVR scale ranges from ‘S1+’ to ‘S5’ The ‘S6’ category

is no longer used in the new FVR scale.

Systematic assignment of FVR

alongside FCQR

• FVRs will typically accompany FCQRs (e.g., 'Af/S3') to

communicate our opinion of risks not addressed by fund

credit quality ratings (FCQRs).

Other Items: Impact For FVR:

Comparable Ratings Analysis• Compare the fund with peers to determine whether a final

adjustment of one rating category up or down is warranted

to determine the ‘final’ FVR.


Thank you

Guyna G. Johnson

Director

S&P Global – Financial Services Ratings

130 E. Randolph Street

Chicago, IL 60601

P (312) 233-7008

C (312) 636-4905

[email protected]

45


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