Item No. 8d_supp
.
Meeting Date: May 8, 2018

Statement of Investment Policy Amendment
to add the Washington State Local Government Investment Pool

Commission Request

Port's Investment Portfolio: Opportunity for Diversification
Recommendation for action:


Add the Washington State Local Government Investment Pool (LGIP) to
the list of authorized investments in the Port's investment Policy



Staff recommends adding the LGIP as an option for investing a portion
of cash for short-term liquidity needs
Many other large local entities include the LGIP in short-term liquidity
and investment strategies
Objectives: increase portfolio diversification and lower risks.
Details about Port's Investment Pool previously provided to Commission
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Investments: Background & Policy
 Authorized investments are
made in accordance with and
subject to restrictions of the
Revised Code of Washington
(RCW) 36.29.020.

 The investment policy is reviewed
periodically, and amended as
appropriate to address changes in
law, market conditions or follow
best practices.

 Commission resolution first
approved Port investment
policy, adopted as of June 11,
2002.

 Staff recommends adding the State's
Local Government Investment Pool
(LGIP).

 Last amendment: June 5, 2012.

State laws limits the types of investments the Port can invest in.
The Port's Investment Policy is included in the documents set.
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Liquidity & Investments - Port's Investment Portfolio
12/31/2017

 Liquidity management (short & long term)

MORTGAGEBACKED
SECURITIES HIGH GRADE
6.4%

 Short term:
 Have sufficient cash available to pay all Port
disbursement, timely
 Investments primarily in Repurchase Agreements
(REPOs) (REPO definition in Appendix)
 Long term use of and reliance on REPOs. Due to
changing market conditions affecting REPO
availability, need to diversify into other shortterm investment options.
 Adding the LGIP supports investments for short
term liquidity

 Long term:
 Invest excess funds for longer term liquidity needs

REPURCHASE
AGREEMENTS
5.1%

TREASURY
NOTES
38.3%

FEDERAL
AGENCIES
44.3%

FEDERAL
AGENCIES
DISCOUNT
NOTES
6.0%

Short term investments primarily in REPOs. Adding LGIP supports short term liquidity

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What is the LGIP?








Local Government Investment Pool
Voluntary investment vehicle
operated by State Treasurer's office
since 1986
Serves as an investment vehicle for
eligible governmental entities to
invest cash surpluses
Operates as an investment pool, like
a money market fund
It is a safe, liquid, diversified and
competitive investment option

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LGIP Participants
 @ 644 local governmental accounts: all 39 counties, (including King County)
 larger cities (including Seattle, Auburn, Lacey,
Redmond),
 colleges & universities,
 special districts (including Seattle Housing Authorities,
Sound & Pierce Transits, Clark & Snohomish Counties Public
Utilities)

 Option to invest all or a portion of surplus
cash.
 Smaller entities who may not have the
resources to manage their own investments
might invest all surplus cash.
 Many large entities include the LGIP in
short-term liquidity and investment
strategies.
 Port plans to invest a portion of cash
for short-term liquidity needs
 oth the Port of Tacoma & the Northwest Seaport Alliance currently invest a portion
B
of their cash in the LGIP. NWSA Commission approved the LGIP in January 2016.

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LGIP Characteristics


LGIP's diversified pool of investments
are primarily money market instruments
that are:


Short term:






Average maturity 60 days
Maximum maturity 397 days

high-quality,
highly liquid.

 The LGIP has an investment policy; its
objectives are similar to those of the Port
of Seattle's:
 safety of principal, maintaining
 liquidity to meet cash flows, and
 yield, providing a competitive interest rate
The same State laws (RCW) 36.29.020) limiting authorized investments apply to the LGIP

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LGIP Characteristics cont'd
 While the LGIP is considered a safe, liquid, and

competitive investment option,
 Investment in the LGIP is not a bank deposit,
and is not insured or guaranteed by the FDIC,
the State of Washington, or any other
governmental agency.
The LGIP supports Port's investment policy objectives: safety, liquidity and yield

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Summary of LGIP benefits
 Benefits of the LGIP for the Port:

 Daily access and availability,
 even when REPO or other options are not
 Can accommodate the size, and precise timing requirements of the Port
 Competitive rates: LGIP recent daily yield ranges:
 December 2017 - 1.16% to 1.38% (vs. Port REPO 1.03% to 1.46%)
 January 2018 - 1.36% to 1.44% (vs. Port REPO 1.25% to 1.46%)
 Gain access to State Treasurer's resources (portfolio management & credit
analysis teams)
 High quality, diversified option
 Risk mitigation, available if/when other options are not
 Low cost: Estimated annual fees - less than 0.01%
 Loss record - no losses
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Steps for adding the LGIP
 Request Commission approval, with two resolutions:
1.

Adopt a Port of Seattle resolution to restate the Port of Seattle
Investment Policy, adding the Washington State Local Government
Investment Pool (LGIP), under Section 9, Authorized Investments.

2.

Adopt - Office of the Washington State Treasurer (OST) LGIP
Resolution, authorizing the investment of The Port of Seattle funds
in the Washington State Local Government Investment Pool (LGIP)
maintained by the OST.

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Appendix:

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What is a Repurchase Agreement (REPO)?
At agreement opening:
 Port "lends" cash to a Broker/Dealer (B/D)
at agreed upon interest rate and term*1
 B/D sends collateral*2 equal to 102% to
105% of cash amount
*1 Typically 1 day, 60 days maximum; & *2 in the form of high quality

U.S. government securities ; both as per Port's Investment Policy.

Port's custody bank returns
collateral only when cash &
interest received

Port

Collateral
Cash + interest

Port

Cash

Collateral

Broker/Dealer

Port's custody bank
releases cash only when
collateral received

At maturity:
 The Port receives cash + interest from
B/D and returns the collateral

Broker/Dealer

REPO is a collateralized short-term investment contract

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Repurchase Agreements (REPO)
Benefits of REPOs to the Port:
Daily access
Size (can accommodate the size range (from $5 to 100 million or more) for the Port's daily & monthly
cyclical needs)
Timing (executed in seconds at or before investment markets opening)

Secure, high quality collateral (collateral must comply with statute & Port's investment policy, and
be 102%/105% of the REPO amount)

Competitive rate

Changing Market Conditions impact availability of REPOs
Less Broker/Dealer participation
Less collateral available:
Federal government and agencies have reduced debt issues for several years
Increasing occasions when there is no REPO availability to the Port
Other alternatives do not have the size, or available at precise times
Port's long term use/reliance needs to be modified due to market changes

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End of presentation

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