O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.
-
Upload
dexter-hubbard -
Category
Documents
-
view
213 -
download
1
Transcript of O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.
![Page 1: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/1.jpg)
OFFICE OF THE ARIZONA STATE TREASURER
January 16, 2015
GFOAz - January 2015
![Page 2: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/2.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
AGENDA
What the State Treasurer does.Controls in place. Investing in funds like the LGIP.Advantages of the LGIP.LGIP Performance. Interest rate outlook. Questions?
![Page 3: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/3.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
STATE TREASURER DUTIES
One of six statewide elected officials Serves a term of 4 years, and can be re-
elected once for a total of 8 years in office Third in line in succession to the Governor Manages Arizona’s $13 billion investment
portfolio Fiduciary of taxpayer money Directs the state’s banking services Serves as:
- Chairman of Arizona’s State Board of Investment
- Chairman of Arizona’s State Loan Commission
- Arizona’s Surveyor General
- Member of the State Land Selection Board
![Page 4: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/4.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
INVESTMENTS
More than $12.9 Billion in 25 different investment pools spread across 1,300 separate accounts broken into three major sources:
1.Over $5 Billion in State Agency Funds (generated from taxes, fees and other revenues)
2.Over $5 Billion in State Land Endowment Funds
3.Over $2 Billion Local Government Investment Pools (LGIP)
![Page 5: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/5.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
GOVERNANCEArizona Constitution
Arizona Revised Statutes
Arizona Board of Investment (BOI)
Investment Risk Management Committee (IRMC)
Investment Policy (approved by IRMC and BOI)
Pre/Post Trade Compliance
Internal Compliance
![Page 6: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/6.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
FUND RISKWhat should I know about investing in funds
like the LGIP?
Credit Risk – Can impact share price Interest Rate Risk – Can impact share price
Duration
Neither your principal nor interest are guaranteed Generally there are two ways a fund manager can
get higher yield: Cut expenses Take on more risk
![Page 7: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/7.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
CHANGES IN INTEREST RATES Changes in the value of a bond are inversely related to
changes in the rate of return. Rates up = Price down.
Long-term bonds have greater interest rate risk than short-term bonds.
Low coupon (Yield) bonds have greater interest rate sensitivity than high coupon (Yield) bonds. (Longer Duration)
Generally; Bad news makes US Treasury bonds more valuable, (prices higher, yield lower) and interest rates go down.
Generally; Good news makes US Treasury bond prices fall and yields rise, and interest rates rise.
The NAV (net asset value) or Market Value of a fund is impacted by the interest volatility of each bond it holds.
![Page 8: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/8.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
2 YEAR NOTES EXAMPLEWhat if the LGIP held all 2y notes?
Today I buy a new issue 2 year note that market yield to me 1.00%;
T 1.00% 1/15/2017 @ 100 (Par)
Tomorrow the FOMC expectantly announces it will raise rates. And the interest rate on the 2Y moves to 1.50%
What is my bond worth? $99.018472
![Page 9: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/9.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
DURATIONDuration is a measure of risk quoted in years.
Duration is the approximate “percentage change” in price for a 100 basis point change in rates. – Then why is it reported as years?
Short definition: The weighted average life of all of the cash flows based on the market price. Duration of a fund can and will change.
As the fund (bond) yield/coupon increases, its duration decreases and the fund becomes less sensitive to interest rate changes.
![Page 10: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/10.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
10 YEAR DURATION EXAMPLE10 year note with a 5% coupon at Par (100
dollar price) Duration = 7.989 years at purchase.
10 year note with a 1% coupon at Par (100 dollar price) Duration is 9.541 years at purchase.
Because the pre maturity cash flows (semi quarterly interest payments) are less.
![Page 11: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/11.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
ADVANTAGES OF THE LGIP Convenience and Compliance - Participants own shares of a
diversified portfolio managed in compliance with Arizona’s statutes as well as required Governmental Accounting Standards Board reporting standards.
Cash Management - Same day liquidity (10:30AM) permits flexibility and fine-tuning of cash management needs in pools 5 and 7.
Costs – All administrative and management fees are deducted from the LGIP earnings accrual each day prior to distribution of the earnings to participants; therefore, fees are totally transparent to participants. Fees are currently 5.5bps, and those fees stay here in Arizona.
Online access to Account Information – Account information can be viewed 24/7 through a secure online web site.
Statements - Monthly statements include all transactions, the earnings rate, and the monthly dividend.
Competitiveness – The LGIP offers a competitive rate of return, which should enhance the rates offered to you on alternative investments.
Experience – The Treasurer’s Office has run the LGIP since 1980.
![Page 12: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/12.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
INVESTMENT TEAM Jeff DeWit – State Treasurer
- 22 years Investment Industry Experience
- 14 years as CEO of an Investment Company
Patricia Humbert – Chief Investment Officer- 30 years Investment Industry Experience
- 15 years at the State Treasurer’s Office
- LGIP Manager
Tim White – Senior Portfolio Manager- 23 years at the State Treasurer's Office
- Former LGIP Manager
Dale Stomberg – Manager of Investment Accounting - 22 years at the State Treasurer’s Office
![Page 13: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/13.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
LGIP
Pool 5: Similar to a money market fund – rated AAAf by Standard & Poor’s. Same day liquidity.
Pool 7: Similar to a money market fund – invests only in assets with the full faith and
credit of the United States. Same day liquidity.
Pool 500: Medium-term bond fund used for longer-term investing. Monthly liquidity.
Pool 700: Medium-term bond fund used for longer- term investing. Invests only in assets with the full faith and credit of the United States. Monthly liquidity.
![Page 14: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/14.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
Pool 5 – LGIPSAFETY: Distribution of Holdings
(Moody's Ratings)
LIQUIDITY: 83% of Assets Mature Within 90 Days YIELD: .10% (November 2014)
Rated AAAf (Highest Rating Available)
$1.2 Billion in Assets as of 11/30/2014
100% Duration Inside 1 year
Diversified Highly Rated Investments Including Repurchase Agreements, Commercial Paper, and Government Securities
83% of the Assets are Cash Equivalent Securities
![Page 15: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/15.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
Pool 7 – Gov’t LGIPSAFETY: Distribution of Holdings
(Moody's Ratings)
LIQUIDITY: 92% of Assets Mature Within 90 Days YIELD: .07% (November 2014)
$1 Billion in Assets as of 11/30/2014
100% Duration Inside 1 year
100% of the Assets are Guaranteed by the Full Faith and Credit of the United States of America
92% of the Assets are Cash Equivalent Securities
AAA0%
20%
40%
60%
80%
100%
120%
![Page 16: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/16.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
Pool 500 – Medium Term LGIPSAFETY: Distribution of Holdings
(Moody's Ratings)
LIQUIDITY: 30% of Assets Mature Within 90 Days YIELD: .93% (November 2014)
$257 Million in Assets as of 11/30/2014
Net Asset Value (share price) of $1.0352 as of 11/30/2014
Over 55% Duration Inside 1 year
100% of the Assets are Investment Grade or Better (60% are rated AAA)
Well Diversified Portfolio of Assets With No More Than 2.5% Exposure to Any Single Corporate Asset
![Page 17: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/17.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
Pool 700 – Gov’t Medium Term LGIP
SAFETY: Distribution of Holdings (Moody's Ratings)
LIQUIDITY: 28% of Assets Mature Within 90 Days YIELD: (November) 1.02%
$145 Million in Assets as of 11/30/2014
Net Asset Value (Share Price) of $1.0104 as of 11/30/2014
26% Duration Inside 1 year
100% of the Assets are Guaranteed by the Full Faith and Credit of the United State of America
Well Diversified Portfolio of Assets Across All available U.S. Full Faith and Credit Securities
![Page 18: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/18.jpg)
ARIZONA STATE TREASURER JEFF DEWIT
INTEREST RATE OUTLOOKFOMC – When will FOMC raise rates? “When the Committee decides to begin to remove policy
accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” SOURCE: Federal Reserve Board December 17, 2014 Minutes.
![Page 19: O FFICE OF THE A RIZONA S TATE T REASURER January 16, 2015 GFOAz - January 2015.](https://reader037.fdocuments.in/reader037/viewer/2022110319/56649c735503460f94925cd1/html5/thumbnails/19.jpg)
OFFICE OF THE ARIZONA STATE TREASURER
QUESTIONS?