LGIP Disclosure and Transparency: What Investors Are Missing

Last November we released results of our annual survey of local government investment pools, which covered 161 pools with nearly $1 trillion in assets.  One observation we made in that report was that LGIPs lack uniform disclosure/transparency with the result that self-governance within the industry is challenging and investors are limited in their ability to assess principal stability and liquidity risk and to compare LGIPs.

We’ve now taken a deeper dive into this with a survey of the specific disclosure and transparency policies of 30 LGIPs.  The sample includes state-sponsored and local -sponsored pools and those managed internally and by external managers.

The survey also was designed to include pools managed by all of the private sector firms that support offerings of multiple LGIPs.  These funds generally employ practices that are recommended by the individual managers, and they utilize what appears to be a common disclosure template.  In this sense the current survey of 30 pools can be seen to cover all of the significant disclosure policies of the industry.

Key findings of the survey:

• Disclosure varies tremendously from fund to fund but is generally much less than disclosure required by the Securities and Exchange Commission for money market funds in the wake of industry challenges in 2008 and 2020.
• The most common disclosure is LGIP yield, but even here the lack of a common definition of yield makes it difficult for investors to compare funds or to compare yields with those on other investments.
• More important than yield for any public funds investors is principal stability and liquidity. LGIPs promise this but many do not offer any ongoing information on how they are managing these issues.  Investors are left with a “trust us” approach.

LGIP investors can promote LGIP transparency.  We’ve developed a simple form tat can be used to score LGIP transparency.  And there are web-based automations, some based on artificial intelligence, that can facilitate gathering key information and monitoring LGIP risk and performance.  These require that LGIPs publish key information in an accessible form.  Treasurers and public sector investment managers should insist on this as a condition of approving an LGIP for investment.

The Public Funds Investment Institute is available to assist investors in completing evaluations and encouraging LGIPs to adopt full disclosure formats.