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' Assets Leveled Off
Both prime and government LGIPs' assets slightly declined, which is typical for the third quarter because of cyclicality. State and local government spending trends typically lead to drawdowns in the second and third quarters of each year. Government LGIPs fell to $92 billion (1.5% decline) while prime LGIPs decreased to $282 billion (1.66% decline). Prime LGIPs are those that have the ability to invest in corporate and bank credit securities--similar to prime money market funds.
In recent years', LGIPs' assets have seen significant growth, driven by various factors such as attractive yields, increased tax receipts proceeds, and stimulus funds post COVID-19. Although there was a slight decline in the third quarter, LGIPs have maintained overall growth from recent years' (see chart 1). We anticipate higher asset levels in the fourth quarter as participants receive tax revenues.
Chart 1
LGIP Yields Declined Following The September Rate Cut
Following the federal funds 50 basis point (bps) rate cut, government and prime yields declined to 4.99% (28-bps decline) and 5.08% (32-bps decline) (see table 1). The swift drop in yields reflects managers remaining short, perhaps due to drawdowns and limited value in extending until the yield curve normalizes.
Table 1
| AAAm' LGIP seven-day net yield (%) | |||||
|---|---|---|---|---|---|
| Index | Sep-23 | Dec-23 | Mar-24 | Jun-24 | Sep-24 |
| S&P Global Ratings ‘AAAm’ government LGIPs | 5.3 | 5.32 | 5.28 | 5.27 | 4.99 |
| S&P Global Ratings ‘AAAm’ prime LGIPs | 5.48 | 5.49 | 5.44 | 5.4 | 5.08 |
NAV Stability
The net asset value (NAV) per share averaged 1.00043 in third-quarter 2024. NAV strength demonstrates managers continuing to prioritize liquidity and high-quality investments, especially due to uncertainty on magnitude and timing of rate cuts. Weekly liquid assets approached 50% for government funds while prime funds remained unchanged at 41%.
Chart 2
Chart 3
Asset allocation has stayed largely the same, but there has been a small uptick in overnight highly liquid assets (money market funds and repo). Managers typically utilize such investments as a tool to remain liquid in anticipation of withdrawals due to cyclicality.
Throughout the quarter, the gap between prime and government WAMs continued to narrow. On average, government-focused LGIPs had a WAM of 28 days in September, compared with 35 days in the second quarter. Prime LGIPs averaged a 34-day WAM in September, a decrease from 38 days.
Table 2
| 'AAAm' LGIP weighted average maturity (days) | |||||
|---|---|---|---|---|---|
| Index | Sep-23 | Dec-23 | Mar-24 | Jun-24 | Sep-24 |
| S&P Global Ratings ‘AAAm’ government LGIPs | 27 | 36 | 36 | 35 | 28 |
| S&P Global Ratings ‘AAAm’ prime LGIPs | 41 | 46 | 40 | 38 | 34 |
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 the impact of economic conditions on such investments, we cite some of the key takeaways from recent reports: "Credit Conditions North America Q4 2024: Set For Improvement With Eyes On The Election," Sept. 25, 2024, and "Economic Outlook U.S Q4 2024: Growth And Rates Start Shifting To Neutral," Sept. 24, 2024.
- S&P Global Ratings' economists view the upcoming gradual easing period as more of a preventative measure for growth from slipping too far below potential.
- S&P Global Ratings' economists are forecasting the Fed's policy rate falling to 3.00%-3.25% by the end of next year.
- We expect the U.S. real GDP growth will slow to below trend next year; S&P Global Ratings now expects the economy will expand 2.7% this year.
Table 3
| 'AAAm' LGIP 'A-1+' credit quality (%) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Index | Sep-23 | Dec-23 | Mar-24 | Jun-24 | Sep-24 | |||||||
| S&P Global Ratings ‘AAAm’ government LGIPs | 99 | 99 | 100 | 99 | 99 | |||||||
| S&P Global Ratings ‘AAAm’ prime LGIPs | 64 | 64 | 63 | 63 | 64 | |||||||
| LGIP--Local government investment pool. | ||||||||||||
Chart 6
Chart 7
Chart 8
Table 4
| 'AAAm' LGIPs--Top 10 by assets | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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 | |||||||||||||
| Government LGIPs | ||||||||||||||
| AAAm | TEXPOOL | 30,895 | 27 | 91 | 100 | 1.00000 | ||||||||
| AAAm | North Carolina Capital Management Trust - Government Portfolio | 20,933 | 31 | 94 | 98 | 1.00052 | ||||||||
| AAAm | New York Cooperative Liquid Assets Securities System (NY CLASS) | 11,348 | 37 | 93 | 100 | 1.00033 | ||||||||
| AAAm | Texas Short Term Asset Reserve (TexSTAR) Cash Reserve Fund | 10,710 | 25 | 69 | 100 | 1.00041 | ||||||||
| AAAm | Lone Star Investment Pool- Government Overnight Fund | 5,953 | 17 | 107 | 98 | 1.00062 | ||||||||
| AAAm | Pennsylvania School District Liquid Asset Fund - Max Series | 4,505 | 29 | 42 | 100 | 1.00028 | ||||||||
| AAAm | New Jersey Asset & Rebate Management Program/Joint Account | 2,041 | 36 | 104 | 100 | 1.00040 | ||||||||
| AAAm | Texas Cooperative Liquid Assets Securities System (TX CLASS Government) | 1,465 | 9 | 98 | 100 | 1.00014 | ||||||||
| AAAm | New York Liquid Asset Fund - MAX Portfolio | 1,237 | 31 | 31 | 100 | 1.00042 | ||||||||
| AAAm | Colorado Local Government Liquid Asset Trust (COLOTRUST PRIME) | 805 | 10 | 99 | 100 | 1.00014 | ||||||||
| Prime LGIPs | ||||||||||||||
| AAAm | State Treasury Asset Reserve of Ohio (STAR OHIO) | 24,797 | 27 | 47 | 38 | 1.00030 | ||||||||
| AAAm | Texas Cooperative Liquid Assets Securities System (TX CLASS) | 24,713 | 34 | 83 | 46 | 1.00045 | ||||||||
| AAAm | Florida PRIME | 23,830 | 40 | 77 | 46 | 1.00059 | ||||||||
| AAAm | California Asset Management Trust/Cash Reserve Portfolio | 19,184 | 37 | 72 | 45 | 1.00071 | ||||||||
| AAAm | Connecticut State Treasurer's Short-Term Investment Fund | 18,858 | 23 | 90 | 14 | 1.00027 | ||||||||
| AAAm | Colorado Local Government Liquid Asset Trust (COLOTRUST PLUS+) | 14,610 | 32 | 82 | 44 | 1.00044 | ||||||||
| AAAm | TEXPOOL Prime | 14,046 | 38 | 74 | 43 | 1.00000 | ||||||||
| AAAm | Maryland Local Government Investment Pool | 13,627 | 44 | 46 | 16 | 1.00032 | ||||||||
| AAAm | Virginia Local Government Investment Pool | 12,698 | 34 | 77 | 23 | 1.00028 | ||||||||
| AAAm | Local Government Investment Cooperative | 12,096 | 46 | 73 | 43 | 1.00067 | ||||||||
| 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 Q4 2024: Set For Improvement—With Eyes On The Election, Sept. 25, 2024
- Economic Outlook U.S. Q4 2024: Growth And Rates Start Shifting To Neutral, Sept. 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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