2016: A Look At Guyna G. Johnson Local Government ...Orange County Money Market Fund AAAm 12/1/2008...

No content below the line

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


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


Background on S&P LGIP Ratings

3Private & Confidential


Overview of Standard & Poor’s 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 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


Types of Ratings We Provide


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


List of S&P Rated LGIPs Under PSFR Criteria


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


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


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


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


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


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.


Sample Components of S&P Fund Rating Analysis


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


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


Sample of Surveillance Summary Information



Sample Investment Pool Profile



Discuss Impact of Money Market Fund Regulations



Summary of SEC’s MMF Reforms


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.


SEC’s MMF Reform: Liquidity Fees And Redemption Gates Impact on PSFRs


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.


SEC’s MMF Reform – Floating the NAV impact on PSFRs


• 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.


Summary of SEC’s MMF Reforms


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


SEC MMF Reform: What has been the response?


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


Changes in Regulation’s Impact on Local Government Investment Pools


• 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


Statement 79 - Certain External Investment Pools and Pool Participants (Published December 2015)


• 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


Impact of Money Market Fund Regulations


• 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


Review Trends in Libor, MMF Investments, Asset Flows




• 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



• 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


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



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




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



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



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

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 (%)


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 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


S&P Rated GIP Index/G.P. Taxable 0.46% 0.46% 0.63% 0.62% 42 70 $82.3


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 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)


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%

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


Portfolio Composition of AAAm Rated LGIPs (PSFR)


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%


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%


6.97%

S&P Rated GIP Index/General Purpose Taxable


Proposed Changes to our FCQR & FVR Methodologies


• 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.


Appendix



Principal Stability Fund Ratings (PSFRs)


• 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.


Principal Stability Fund Ratings Definitions (Effective January 5, 2010)


• 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.


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


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


PSFR Sensitivity Matrix


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


PSFR Sensitivity Matrix


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


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

[email protected]

44


Copyright © 2016 by Standard & Poor’s Financial Services LLC. All rights reserved.

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse

engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or

its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders,

employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or

omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is

provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF

MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL

BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any

direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits

and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions,

analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the

suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill,

judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an

investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due

diligence or independent verification of any information it receives.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to

assign, withdraw or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of

an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of

S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received

in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and

analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com

(subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at

www.standardandpoors.com/usratingsfees.

Australia

Standard & Poor's (Australia) Pty. Ltd. holds Australian financial services license number 337565 under the Corporations Act 2001. Standard & Poor’s credit ratings and related research are not

intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).

STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC.


2016: A Look At Guyna G. Johnson Local Government ...Orange County Money Market Fund AAAm 12/1/2008...

Documents

Transcript of 2016: A Look At Guyna G. Johnson Local Government ...Orange County Money Market Fund AAAm 12/1/2008...