Article Solutions for Cities By Laura Glenn

Cal Cities endorses new investment pool for public agencies

Laura Glenn, CFA, is a director at Public Trust Advisors, LLC; she can be reached at laura.glenn@publictrustadvisors.com.


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Every city, county, and special district has a mission and a plan based on a set of values it shares with its community. The same should be true when it comes to investing local government funds. Although the primary objectives of investing public funds are always safety, liquidity, and yield (in that order), transparency and diversification should be considered as well.

Launched in response to the growing investment needs of public agencies, California CLASS provides an additional investment option for agencies’ daily liquidity and strategic reserve investments encompassing all of these objectives. The investment program, endorsed by the League of California Cities and the California Special Districts Association (CSDA) in collaboration with Public Trust Advisors, LLC, is a California Joint Powers Authority governed by a board of trustees comprised of city and special district finance professionals.

The California CLASS Joint Exercise of Powers Agreement was fully executed in June by the founding participants. The governing Board of Trustees for California CLASS is Chairperson Christina Turner (city of Morgan Hill); Vice Chairperson Ryan Clausnitzer (Alameda County Mosquito Abatement District); Treasurer George Harris (city of Lancaster); and Secretary Margaret Moggia (West Basin Municipal Water District).

“California CLASS provides valuable investment options and is a powerful diversification tool for public agency investors seeking safety, convenience, transparency, and competitive returns,” Turner said.

Two investment options

The fundamental purpose of California CLASS is to develop and sustain an investment program wholly committed to the tenets of safety, liquidity, and yield for the benefit of participating public agencies. To that end, California CLASS will offer two investment fund options:

California CLASS Prime is designed to maintain a stable net asset value (NAV) of $1, seeking to preserve capital, provide daily liquidity, and generate competitive returns for its participants. S&P Global Ratings has assigned its ‘AAAm’ principal stability fund rating to California CLASS Prime, the highest rating assigned to principal stability funds.

California CLASS Enhanced Cash is a variable NAV fund that is most suitable for those public agencies seeking to develop a well-rounded investment program to include its strategic reserves. Enhanced Cash seeks to complement the daily liquidity offering of the Prime fund by providing an investment option for those agencies seeking access to longer-dated securities that seek to generate higher income than those in a stable NAV fund.

The longer weighted average maturity of the Enhanced Cash fund relative to the Prime fund makes it an appropriate option for strategic reserves that an agency does not anticipate withdrawing for 12+ months. FitchRatings has assigned California CLASS Enhanced Cash a rating of ‘AAAf/S1’. According to FitchRatings, a fund rated ‘AAAf/S1’ demonstrates the highest underlying credit quality and a very low sensitivity to market risk.

Both portfolios are managed by a team of investment professionals who are solely focused on the management of public funds nationwide. Investments are made in accordance with California Government Code Section 53601 and the California CLASS investment policies. Permissible investments include U.S. Department of the Treasury securities, repurchase agreements, U.S. government agencies, certificates of deposit, and highly rated commercial paper.

Investing idle public funds provides additional interest income for a public entity that can be invested back into the community. The daily liquidity of California CLASS gives participants the flexibility of earning income on those dollars until they are needed. Additionally, using a robust cash flow analysis, California public entities can utilize California CLASS Enhanced Cash to invest dollars that may not be needed within the next 12-18 months with the potential to earn a higher yield than a stable NAV fund in certain economic environments.

“Our team at Public Trust is thrilled to partner with Cal Cities and CSDA. Together, we seek to provide an exceptional investment experience to California public agency investors,” Public Trust Managing Director Tom Tight said. “California CLASS was created for all types of eligible public agencies — small, large, and in-between — and it’s an honor to partner with an organization that represents their memberships so professionally and faithfully.”

An exceptional user experience and easy-to-use platform

Public Trust, in its capacity as the investment advisor and fund administrator, is committed to providing California CLASS participants with an exceptional user experience and professional portfolio management. In the spirit of the principle of transparency, participants can access the monthly portfolio holdings report via the California CLASS participant portal. Participants may also request a copy of the investment holdings report showcasing the investment positions for a single day.

California CLASS also leverages technology to provide participants with an efficient and easy-to-use platform to transact. The Public Trust LGIP Administration Services platform is designed to harness the power of a unified, highly automated system that gives participants quick and accurate transaction processing.

“California CLASS Participants have already benefited from improved LGIP back-office technology as it consistently results in productivity gains through greater operational efficiencies,” said Brent Turner, regional director of strategy at Public Trust. “These efficiencies lead to lower costs and, as a result, more investment proceeds returned to the local government investment pool participants.”

Currently, Public Trust provides investment services for more than 5,000 local governments nationally with combined assets of more than $55 billion as of May 31, 2022. U.S. Bank, N.A., serves as the custodian, and San Francisco-based law firm Orrick provides special legal counsel to the program.

For additional information about the services provided by California CLASS, please visit the California CLASS website at www.californiaclass.com or contact client services via phone at (866) 987-4445 or email at clientservices@californiaclass.com. Together we can provide an investment option aiming to generate interest income to provide additional dollars for California cities to provide valuable services to their citizens.

Be sure to connect with a California CLASS representative during the League of California Cities Municipal Finance Institute, Dec. 7-8 in Monterey.

Public Trust Advisors® investment services for the public sector include the management of local government investment pools (LGIP) and separately managed, individual investment accounts (SMA). Public Trust Advisors investment management services include administration (fund accounting, participant accounting, transfer agency, client services, sales, and marketing) and/or investment advisory (portfolio management, credit research, risk management, and portfolio valuation). For more information, visit us at www.publictrustadvisors.com.

California CLASS is rated ‘AAAm’ by S&P Global Ratings. A ‘AAAm’ rating by S&P Global Ratings is obtained after S&P evaluates a number of factors including credit quality, market price exposure, and management. For a full description on rating methodology, please visit www.spglobal.com. California CLASS Enhanced Cash is rated ‘AAAf/S1′ by FitchRatings. The ‘AAAf’ rating is Fitch’s opinion on the overall credit profile within a fixed-income fund/portfolio and indicates the highest underlying credit quality of the pool’s investments. The ‘S1’ volatility rating is Fitch’s opinion on the relative sensitivity of a portfolio’s total return and/or net asset value to assumed changes in credit spreads and interest rates. The ‘S1’ volatility rating indicates that the fund possesses a low sensitivity to market risks. For a full description on rating methodology, please visit www.fitchratings.com. Ratings are subject to change and do not remove credit risk.

Many factors affect performance including changes in market conditions and interest rates and in response to other economic, political, or financial developments. Investment involves risk including the possible loss of principal. No assurance can be given that the performance objectives of a given strategy will be achieved. Past performance is no guarantee of future results. Any financial and/or investment decision may incur losses.

Information is obtained from third-party sources that may or may not be verified. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. The foregoing is for informational purposes only and should not be considered a solicitation of investment advisory services.