Local Government Investment Pools are leveraged by 32 state-sponsored plans and thousands of local governments who use them as interest-bearing instruments that aren't subject to the same Securities and Exchange Commission regulatory requirements as other types of investment funds.
"LGIPs command a growing share of the $4 trillion public funds investment market," said Marty Margolis, founder of the Public Funds Investment Institute.
The institute tracks LGIPs and publishes a survey each year that provides a look into a somewhat opaque market.
"The survey results provide state treasurers and trustees of LGIPs with details on how programs operate across the nation," said Margolis. "They also provide investors with key information to help them evaluate and monitor LGIPs that they invest in."
LGIPs have been around since the1970s and are typically managed by state treasurers but they can also be set up through intergovernmental agreements known as "joint powers" agreements.
According to the survey, local-sponsored funds are usually managed by an external partner that includes, banks, broker-dealers or asset managers.
S&P Global Ratings has been rating LGIPs since 1992.
"We are able to analyze LGIPs consisting of both internal and external participants where the management team is an experienced investment team and/or outsourced to an investment advisor," said S&P.
The funds target high liquidity, low-risk, short term, investments including government securities.
On average more than 90% of government- oriented LGIP assets were invested in U.S. Treasuries, government agencies or the Treasury Repo Market.
Local sponsored prime pools may have as much as 90% of assets in credit, in contrast to prime money market funds that typically invest no more than about 50% in credit.
According to the survey, "After several years of rapid growth, the path leveled in 2024, with assets of state-sponsored programs growing by 3% over 2023."
Even though they are not regulated by the SEC, some LGIPs make disclosures of portfolio and investor activity that are equivalent to SEC regulations.
According to the Government Finance Officer's Association, "Investments in these pools are not insured or guaranteed and substantial losses have occurred in the past."
In 2007 the Florida Local Government Investment Pool froze withdrawals during the subprime mortgage crisis, a bank run that still serves as a warning about the downside of LGIPs.
State-sponsored programs account for the lion's share of the funds valued at $691 billion in 47 portfolios with an average of size of $14.7 billion.
Local sponsored LGIPS had assets of $240 billion in 114 portfolios with an average of $2.1 billion.
The institute tracks LGIP's financial performance against money market yields and currently has the PF II Prime LGIP benchmark leading the pack with a yield of 4.09% as compared against a 3.68% offered by a 12-month bank CD.
