'AAAm' LGIPs Trends Report
The 'AAAm' local government investment pool (LGIP) trends report shows metrics of U.S.-domiciled LGIPs that seek to maintain principal value ($1.00) and limit exposure to principal losses due to credit risk. The LGIPs featured in this report all conform to our principal stability fund ratings (PSFR) criteria.
In our rating analysis, we emphasize the net asset value (NAV) per share, 'A-1+' credit quality, weighted average maturity to reset (WAM-R), weighted average maturity to final (WAM-F), net asset trends, and the underlying composition of LGIPs. For more, see the "'AAAm' Local Government Investment Pools" section at the end of this report.
U.S LGIPs Maintained Asset Growth From Prior Seasonal Inflows
Prime LGIPs continued to grow in second-quarter 2024, while government strategies saw a slight decline, with overall asset growth plateauing. Prime LGIPs expanded to $286 billion (a 2.5% increase from the prior quarter), and government LGIPs fell to $93 billion (a 5% decrease). Prime LGIPs are those that have the ability to invest in corporate and bank credit securities--similar to prime money market funds.
Outflows and stabilization typically occur in the second quarter, owing to the cyclical nature of LGIPs. We think state and local government spending trends could lead to drawdowns and limit growth in the third quarter.
Chart 1
LGIPs Yields Remain Elevated
LGIPs yields experienced minimal change (see table 1). In second-quarter 2024, there was a minimal decrease in both prime (4-basis-point [bps] decline) and government net yields(1-bps decline). With small to no change in asset allocation, the slight decline can be attributed to a small drop in Treasury yields in addition to a slight decline in yields for other investments (such as commercial paper and deposits).
Table 1
'AAAm' LGIP seven-day net yield (%) | |||||
---|---|---|---|---|---|
Index | Jun-2023 | Sep-2023 | Dec-2023 | Mar-2024 | Jun-2024 |
S&P Global Ratings ‘AAAm’ government LGIPs | 5.04 | 5.30 | 5.32 | 5.28 | 5.27 |
S&P Global Ratings ‘AAAm’ prime LGIPs | 5.22 | 5.48 | 5.49 | 5.44 | 5.40 |
NAV Stability
The net asset value (NAV) per share averaged 0.99991 in second-quarter 2024. NAV strength demonstrates managers continuing to prioritize liquidity and high-quality investments. Weekly liquid assets (assets maturing in less than seven days) remained near 45% for government funds while prime funds remained unchanged at 40%.
Chart 2
Chart 3
Managers Reduced WAMs For Prime Funds, Which Are Now Similar To Those Of Government Funds
Prime strategy funds typically have longer weighted average maturities (WAMs) relative to government LGIPs (see table 2 and chart 4). However, throughout second-quarter 2024, the gap between prime and government WAMs narrowed. On average, government-focused LGIPs had a WAM of 35 days in June, compared to 36 days in the first quarter. Prime LGIPs averaged a 38-day WAM in June, a decrease from 40 days.
We think the decline in WAMs may imply minimal value in extending, or perhaps funds are staying liquid as managers anticipate drawdowns for the third quarter. Uncertainty about the direction and timing of rate cuts from the Federal Reserve could be an additional factor.
Table 2
AAAm' LGIP weighted-average maturity (in days) | |||||
---|---|---|---|---|---|
Index | Jun-2023 | Sep-2023 | Dec-2023 | Mar-2024 | Jun-2024 |
S&P Global Ratings ‘AAAm’ government LGIPs | 24 | 27 | 36 | 36 | 35 |
S&P Global Ratings ‘AAAm’ prime LGIPs | 36 | 41 | 46 | 40 | 38 |
Chart 4
Chart 5
Economic Updates
The underlying instruments in LGIP portfolios are generally high credit quality ('A-1' or higher) U.S. government, U.S. agency, and bank investments (see table 3 and chart 6). Recognizing this, we cite some of the key takeaways from recent reports: "Credit Conditions North America Q3 2024: A Brighter Outlook, Laden With Risks," June 25, 2024, and "Economic Outlook U.S Q3 2024: Milder Growth Ahead," June 24, 2024.
- S&P Global Ratings' economists expect the U.S. economy is on track for 2.5% growth in 2024, which is unchanged from the March forecast.
- S&P Global Ratings' economists forecast the Fed to start reducing its policy rate in December.
- In the second quarter, North American upgrades outpaced downgrades for the first time in two years.
Table 3
AAAm' LGIP 'A-1+' credit quality (%) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index | Jun-2023 | Sep-2023 | Dec-2023 | Mar-2024 | Jun-2024 | |||||||
S&P Global Ratings ‘AAAm’ government LGIPs | 99 | 99 | 99 | 100 | 99 | |||||||
S&P Global Ratings ‘AAAm’ prime LGIPs | 64 | 64 | 64 | 63 | 63 | |||||||
LGIP--Local government investment pool. |
Chart 6
Chart 7
Chart 8
Table 4
'AAAm' LGIPs--Top 10 by assets | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Government LGIPs | ||||||||||||||
Principal stability fund rating | Local government investment pool | Net assets (mil. $) | --Portfolio maturity (days)-- | 'A-1+' credit quality (%) | NAV per share | |||||||||
WAM-R | WAM-F | |||||||||||||
AAAm | TEXPOOL | 33,456 | 35 | 96 | 100 | 1.00000 | ||||||||
AAAm | North Carolina Capital Management Trust - Government Portfolio | 20,583 | 32 | 84 | 99 | 1.00011 | ||||||||
AAAm | New York Cooperative Liquid Assets Securities System (NY CLASS) | 12,046 | 40 | 73 | 100 | 1.00005 | ||||||||
AAAm | Texas Short Term Asset Reserve (TexSTAR) Cash Reserve Fund | 10,916 | 34 | 63 | 100 | 0.99995 | ||||||||
AAAm | Lone Star Investment Pool- Government Overnight Fund | 6,392 | 34 | 101 | 98 | 0.99990 | ||||||||
AAAm | Pennsylvania School District Liquid Asset Fund - Max Series | 2,422 | 35 | 46 | 100 | 1.00000 | ||||||||
AAAm | New Jersey Asset & Rebate Management Program/Joint Account | 1,891 | 42 | 105 | 100 | 0.99992 | ||||||||
AAAm | New York Liquid Asset Fund - MAX Portfolio | 1,452 | 38 | 38 | 100 | 0.99995 | ||||||||
AAAm | Texas Cooperative Liquid Assets Securities System (TX CLASS Government) | 1,387 | 7 | 91 | 100 | 1.00004 | ||||||||
AAAm | Nebraska Liquid Asset Fund | 905 | 42 | 104 | 100 | 0.99995 | ||||||||
Prime LGIPs | ||||||||||||||
Principal stability fund rating | Local government investment pool | Net assets (mil. $) | --Portfolio maturity (days)-- | 'A-1+' credit quality (%) | NAV per share | |||||||||
WAM-R | WAM-F | |||||||||||||
AAAm | Texas Cooperative Liquid Assets Securities System (TX CLASS) | 26,101 | 24 | 77 | 54 | 0.99995 | ||||||||
AAAm | Florida PRIME | 25,503 | 46 | 83 | 54 | 0.99990 | ||||||||
AAAm | State Treasury Asset Reserve of Ohio (STAR OHIO) | 24,783 | 44 | 57 | 66 | 0.99992 | ||||||||
AAAm | California Asset Management Trust/Cash Reserve Portfolio | 20,205 | 39 | 79 | 55 | 0.99983 | ||||||||
AAAm | Connecticut State Treasurer's Short-Term Investment Fund | 17,994 | 33 | 77 | 79 | 1.00009 | ||||||||
AAAm | Colorado Local Government Liquid Asset Trust (COLOTRUST PLUS+) | 15,310 | 32 | 87 | 53 | 0.99995 | ||||||||
AAAm | TEXPOOL Prime | 14,855 | 41 | 78 | 58 | 1.00000 | ||||||||
AAAm | Virginia Local Government Investment Pool | 14,834 | 50 | 91 | 77 | 0.99993 | ||||||||
AAAm | Local Government Investment Cooperative | 12,509 | 45 | 68 | 61 | 0.99992 | ||||||||
AAAm | West Virginia Money Market Pool | 9,736 | 35 | 68 | 53 | 0.99995 | ||||||||
Source: S&P Global Ratings. |
'AAAm' Local Government Investment Pools
The 'AAAm' LGIP trends report shows metrics of U.S.-domiciled LGIPs that seek to maintain principal value ($1.00) and limit exposure to principal losses due to credit risk, as defined in S&P Global Ratings' PSFR criteria.
LGIPs are present in many U.S. states where, generally, the state treasurer oversees a pooled investment vehicle that operates in a similar way to a money market fund. Typically a cost-effective investment option, LGIPs allow municipalities and public entities to combine their idle cash and operating balances to obtain economies of scale, through a diversified range of investments, to earn an incremental rate of return.
Unlike money market funds registered with the SEC, LGIPs are not regulated by the SEC and therefore not subject to SEC rule 2a-7. However, LGIPs typically benefit from the purview of state statutes, which provide guidelines on LGIPs' investment policy and objective, as well as from the standards and guidance of the Governmental Accounting Standards Board, where standard 79 allows the use of amortized cost to value an LGIP's portfolio assets.
Our LGIP metrics demonstrate the investment practices of 'AAAm' rated LGIPs and those conforming to our PSFR criteria. If an individual LGIP's metrics are below our benchmarks, this may indicate a more conservative approach to investment. Metrics well above our benchmarks may signal a more aggressive approach, albeit still within the range for a 'AAAm' PSFR.
Related Research
- Credit Conditions North America Q3 2024: A Brighter Outlook, Laden With Risks, June 25, 2024
- Economic Outlook U.S. Q3 2024: Milder Growth Ahead, June 24, 2024
This report does not constitute a rating action.
Primary Credit Analyst: | Kara Wachsmann, Englewood + 303 721 4547; kara.wachsmann@spglobal.com |
Secondary Contacts: | Michael Masih, New York + 1 (212) 438 1642; michael.masih@spglobal.com |
Andrew Paranthoiene, London + 44 20 7176 8416; andrew.paranthoiene@spglobal.com |
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