Policy objectives of safety, liquidity and return guide city-government portfolios. GPA collaborates with city management and staff to design a liquidity and core investment component for the overall portfolio. This structure ensures that funds are always available for ongoing cash needs while excess balances are invested in a manner to enhance returns even through changing interest-rate cycles.
Cities often rely on state or county investment pools to manage their investment funds. This can provide a sense of security because investment pools are typically invested with a weighted average maturity of 60 days to one year and they provide same-day liquidity. However, upon further analysis, city finance officers can improve earnings by investing funds that are not needed for daily liquidity in the portfolios with parameters guided by investment policy and state statues/codes. We work with clients to create a balanced portfolio using the investment pools, bank funds and liability-matched investments for liquidity purposes—and a core investment fund that diversifies the maturity and asset-allocation of fixed-income securities. This bifurcated structure smooths out returns over interest-rate cycles.
GPA recently worked with a city finance director who knew he would be retiring within one year. He wanted to map out his knowledge of specific fund analysis and cash flow to provide support to the new finance director. This important exercise allowed him to step back and review how he had been instinctively managing the portfolio for the past 20 years while incorporating his work with GPA. The result was GPA managing the portfolio with a liquidity/core component allocation and managing the core investment component to a zero- to five-year treasury benchmark. Through the mapping process, we were able to support the strategy by defining the purpose of each fund that made up the investment portfolio and connected it to the risk/return strategy—giving him and the future director confidence in the investment program.