S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Other CriteriaGovernment Investment PoolThe primary objective of a government investmentpool (GIP) is the prudent managementof public funds on behalf of state and local governments.GIPs are established to offer cost-effectiveinvestment vehicles in which municipalitiesand public entities pool their idle cash and operatingfunds while earning a competitive rate ofreturn and providing safety and liquidity. GIPsare operated by U.S. states, counties, cities andother public entities and generally serve as investmentvehicles for public investors in the state ormunicipal jurisdiction.State-level pools are generally run by treasurersthat are either elected or appointed officials of thestate. In general, state-sponsored GIPs serve as avoluntary, professionally managed, investmentoption for operating funds for municipalities withina state. Some state pools have been in existence formore than 25 years. Many municipalities invest instate-run GIPs as they offer a cost-effective investmentvehicle. School districts are often mandated toinvest surplus funds and operating money in staterunpools. Other public entities see GIPs as analternative to self-management or to private moneymarket funds.County-sponsored GIPs are popular in Californiaand Washington. In California, elected countytreasurers run most county pools. These countytreasurers are responsible for management not onlyof their own county funds, but also of the managementof public entities (i.e., school districts) fundslocated within the respective county. County governmentsin California maintain investments poolsfor their operating and capital funds as well as forthe investment of underlying local governments.Other government/private-sponsored GIPs maybe formed through inter-governmental agreementsor directly by private firms. For example, theFlorida Local Government Investment Trust(FLGIT) was created through the joint efforts of theFlorida Association of Court Clerks and the FloridaAssociation of Counties. The first privately sponsoredGIP was the Pennsylvania Local GovernmentInvestment Trust (PLGIT), formed in early 1981.Over time, GIPs have undergone a significanttransformation due to new regulations intended totighten operations and establish more stringentinvestment criteria. The greater scrutiny stems fromincreased awareness of the risks associated withinvesting in seemingly “safe” pools, as demonstratedby some well-publicized losses suffered by a fewGIPs. Fortunately, many states have heeded the callfor more oversight and disclosure by adopting theguidelines recommended by public associations suchas, the National Association of State Treasurers(NAST), the Government Finance Officer’sAssociation (GFOA), the Association of PublicTreasurers of U.S. & Canada (APT US&C) and theGovernment Accounting Standards Board (GASB).The investment practices and guidelines calledfor the adoption of formal and clear investmentobjectives, written and approved investment policiesand full disclosure of pool objectives and policies.Many pools have established advisory boardsto provide oversight to pool managers and to setbasic investment guidelines and operating policies.However, some GIPs delegate control and investmentdecision-making responsibilities to the poolmanager or fiduciary, with limited oversight andwith no formal board. Proper controls begin withestablished investment policies and suitable oversight.GIP advisory boards add a much-neededlevel of oversight and help ensure that these policiesare adhered to and are consistent with apool’s objectives.Such oversight-whether performed by a boardof pool participants or an outside, independentservice-should be part of all GIP programs,regardless of the experience and track record ofthe pool’s manager.To provide an additional level of oversight, statesand public investor associations have requested andreceived Standard & Poor’s ratings on GIPs.Standard & Poor’s maintains ratings (both publicand private) on approximately 70 GIPs or fundstargeted to public entities. Standard & Poor’s hastwo types of pool ratings: Stable NAV Pool Ratingsand Variable NAV Pool Ratings. Stable NAV GIPscan differ in their level of risk taking, internal oversight,participant services, and external reporting.GIPs are generally not registered with the SECunder the Investment Company Act of 1940, butmany pools do choose to follow the investmentguidelines of SEC Rule 2a-7 of the InvestmentCompany Act governing U.S. money market funds.These pools seek to provide a stable net asset value312 Standard & Poor’s Public Finance Criteria 2007