1. Interest Income, What is That?
Laurie Mardis, Miles Capital as Investment Advisor to the Iowa Public Agency Investment Trust (IPAIT)
Handouts and presentations are available online at

2. Public Fund Investing Overview

3. Public Fund Investing Overview
Investing & Protecting Public Funds
Utilize sound strategy and prudent oversight
Iowa Code Section 12B “…requires that when making investment decisions, a public entity shall consider the role that the investment or deposit plays within the portfolio of assets of the public entity and the goals of [investment prudence].”
Primary Goals: Safety of principal, Maintaining the necessary liquidity, Reasonable return
Provide liquidity to support operations
Verify creditworthiness and collateralization
Maintain flexibility and convenience in investing
Diversify to eliminate risk of loss resulting from overconcentration
Follow Section 12B.10 of the Iowa Code: Permitted Investments
An investment program for public moneys must have four basic components: legality, safety, liquidity, and yield.
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4. Public Fund Investing Overview: Permitted Iowa Entity Investments
Maturity Limits
“Operating Funds” maximum maturity of 397 days
“Non-operating Funds” have no maximum maturity
Exposure Limits
Prime Bankers Acceptances, 270 days, less than 5% in single issuer
Highly rated Commercial Paper, 270 days, less than 5% in a single issuer
Bond Proceeds can include “investment contracts or tax-exempt bonds” as well.
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5. Public Fund Investing Overview: Permitted Iowa Entity Investments
Section 12B.10 Permitted Investments
Securities issued or guaranteed as to payment of principal and interest by the U.S. Government (Treasury Securities)
Obligations issued or guaranteed as to payment of principal and interest by agencies or instrumentalities of the U.S. Government (Agency Securities)
Repurchase Agreements collateralized/secured by securities listed above
Money Market Funds: SEC-registered, meeting 2a-7 guidelines
Certificates of Deposit (CDs) and other evidences of deposit at federally insured Iowa depository institutions (DDA/Sweep) and CDARS investments
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6. Public Fund Investing Overview: Investment Policy Statements
Investment Policy Statement (IPS)
Entities must have a written policy
Document should cover Delegation of Authority, Goals of Prudence, Objectives of the Investments, Eligible/Permitted Investments, Constraints (diversification, maturity, quality), Compliance with State Code, Safekeeping, and Reporting
IPS must be periodically reviewed – annually, if not more often
IPS must be distributed to your Governing Body, all depository institutions or fiduciaries, and your auditor
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7. Public Fund Investing Overview: Caution
Know Your Products
Some cash management funds or products may not be backed by appropriate collateral or security
FDIC-insured products only apply to FDIC limits
Trading for the purpose of speculation or realization of profits is not permitted
Reverse Repurchase Agreements, Corporate Bonds, Futures/Options, Public Equities all not permitted
Know Your Providers
Ensure depository institutions understand Code 12B.10 and Collateralization requirements
Confirm you are receiving Best Execution on trade activity
Agreements must follow rules for Public Funds Custodial Agreements
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8. (aka: When will rates get better?)
Economic Overview
(aka: When will rates get better?)
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9. Fed Funds Rate History
During and after the financial crisis, the Fed cut rates to encourage risk taking by companies and investors.
Fed policy has driven rates lower across the yield curve, leaving municipalities with substantially less investment income to meet expenses.
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10. When Will Rates Rise?
The Fed won’t raise rates until domestic growth proves sustainable. GDP growth has been decent and it can continue.
Housing showed significant weakness in 1Q14, but it has recovered and should not be a headwind to growth.
Source: Bloomberg
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11. When Will Rates Rise?
Unemployment is falling and inflation remains subdued.
The Fed should complete tapering in the Fall, and then will wait to see how the economy evolves. Rate increases should come in 2H14.
Source: Bloomberg
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12. Why the Fed Matters
Monetary policy and fiscal policy have biggest impact: the Fed dictates monetary policy
Size of the Fed’s Balance Sheet
Expanded more than five-fold since mid-2008
Fed Funds target rate may no longer be a useful tool because banks are less sensitive, given significant level of excess reserves
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13. Federal Reserve: New Fixed Rate Full Allotment Reverse Repo Program (FRFA RRP)
Began testing in Fall 2013, extended through January 2015
When fully operational, will allow participants to invest in unlimited amounts at the established rate
Appears effective at setting overnight rates in the market because it expands the set of counterparties beyond banks
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14. IPAIT Overview
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15. IPAIT Overview
With IPAIT, assets always follow Iowa Code Section 12B.10
Created in 1987
Purpose of creation: to enable eligible Iowa public agencies to safely and effectively invest their available operating and reserve funds
Formed as a 28E
Registered with the Securities and Exchange Commission in 1993
Sponsored by:
Iowa State Association of Counties (ISAC)
Iowa League of Cities (ILC)
Iowa Association of Municipal Utilities (IAMU)
Board of Trustees
City representatives include:
Brent Hinson, City of Washington
Andrew Lent, City of Carlisle
Michelle Weidner, City of Waterloo
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16. IPAIT Overview (cont’d.)
Members include Counties, Cities, Municipal Utilities
IPAIT was established to provide soundly managed, pooled investment vehicles for Iowa’s public entities, designed to accrue benefits through aggregation of funds and follow the framework and safeguards established for local governments of Iowa.
Service Providers:
Investment Advisor Miles Capital, Inc.
Program Administrator Miles Capital, Inc.
Custodian Wells Fargo Bank, N.A.
Legal Counsel Ahlers & Cooney, P.C.
Auditor KPMG, LLP
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17. IPAIT Goals
Safety of Principal, Maintenance of Liquidity, Provision of Yield
Safety of Principal
Sound investment framework
Professional management
Legal framework and Chief Compliance Officer
Account-level security and professional administration
Maintenance of Liquidity
Active cash flow monitoring
Maintain portion in overnight investments, collateralized at 102%
Yield
Designed to maximize yield opportunities within Permitted Investments and liquidity constraints
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18. IPAIT Investment Vehicle Options
IPAIT Diversified Fund
Daily liquidity
Pooled investment
Operating funds
IPAIT Diversified Guidelines
Invested per SEC Rule 2a-7 (maturity, weighted maturity constraints)
Permissible investments fully compliant with 12B.10
Excludes Commercial Paper, Bankers Acceptances
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19. IPAIT Investment Vehicle Options (cont’d.)
IPAIT FTA Program
Longer-term maturities
Individual direct investment
Potentially offers more advantageous yield
Also in compliance with the Iowa State Code 12B.10
IPAIT FTA (Fixed Maturity / Fixed Rate)
Investments include CDs or Government Securities
Option 1: Bulleted (single maturity) investment
Option 2: Ladder of securities
Designed to meet your unique cash flow or bond proceed projections
IPAIT advisor’s portfolio managers can help analyze and propose an appropriate maturity profile
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20. IPAIT Benefits Convenient Recordkeeping
Professional program administration
Tenured team to answer inquiries and assist with transactions
Unlimited sub-accounts (at no charge) support tracking and accounting
Monthly consolidated statement
Online Access: IPASonline
24/7 access, daily rate information
Enter / view / modify transactions, current and future date
View balances, historical transactions, dividend accruals and postings
Online daily transaction confirmations
Export data for easy use in your accounting system
Vendor Pay
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21. IPAIT Benefits Participant Service & Support Direct, toll-free access
Dedicated IPAIT relationship manager to call on participants and prospects (face-to-face meetings)
Access to portfolio management and compliance staff as needed
Aggregate participant feedback on potential enhancements
Liaise with IPAIT Board of Trustees, Sponsoring Associations, and Service Providers
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22. Safety Considerations for Public Investing: IPAIT Program Registered Investment Advisor
Miles Capital, Inc.
Maintains compliance with Codes, IPS
Diversifies assets prudently
Verifies pledges of collateral
Performs credit analysis & due diligence on counterparties/depositories
Ensures portfolio liquidity
Reports to Board of Trustees, Sponsoring Associations, Executive Directors
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23. Safety Considerations for Public Investing: IPAIT Program Custodian
Wells Fargo
Ensures compliance with Public Fund Custodial Agreements
Arranges settlement of trades and maintains records
Administer holdings: collect and record income payments, oversee bond calls, etc.
Safeguards securities mutually owned by all fund investors
Collects and reports on verification of collateral
Reports to Board of Trustees, Executive Directors
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24. Safety Considerations for Public Investing: IPAIT Program Chief Compliance Officer (CCO)
Gwen Gosselink, IPAIT CCO
Provides oversight and knowledge of securities law
Maintains registration with SEC
Oversees SEC and auditor exams
Completes annual reports, SEC Filings, Information Statements
Ensures compliance with 2a-7 and Iowa Code 12B.10
Identifies potential risks and verifies due diligence
Reports to Board of Trustees
IPAIT Legal Counsel present at Executive Director and Board meetings
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25. IPAIT Diversified Fund: Current Portfolio Construction (as of 8/27/14)
Assets
% of Portfolio
IPAIT
Repo
94,489,000
33%
Bank deposits
162,837,821
57%
Governments
27,000,000
10%
284,326,821
100%
An investment in the Fund is not insured or guaranteed by the FDIC or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00/share, it is possible to lose money by investing in the Fund. Please read the Information Statement prior to investing. The Information Statement is available at
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26. Support and Questions IPAIT Toll-Free Line: (800) 872-4024
Amy Mitchell – IPAIT Director, Public Fund Services & Administration
Anita Tracy – IPAIT Senior Fund Services Administrator
Laurie Mardis, CFA – IPAIT Director Fixed Income & Portfolio Manager
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27. Disclosures
IPAIT’s unique, internet-based proprietary reporting system offers real-time account inquiry, and transaction capabilities via the internet. Participants may invest, withdraw funds, check balances and transaction history, and make vendor payments with this service. There is also toll-free phone access to experienced administrators who can personally assist you with any IPAIT-related inquiry.
There is no limit on the number of individual accounts, no minimum balance requirement, and no limits on the number of transactions per month. Please contact us today to learn more about the additional benefits IPAIT has to offer you.
The information contained herein is solely for informational purposes and does not constitute an investment recommendation or an offer to sell any investment product. This document does not take into account the particular investment objectives or financial circumstances of any specific person or entity who may receive it. Before making an investment, investors are advised to thoroughly and carefully review financial, legal, and tax consequences of all investments to determine suitability. All investments involve risk including the loss of principal.
All expressions of opinion and predictions in this report are subject to change without notice. All information contained herein is believed to be correct, but accuracy cannot be guaranteed and should not be relied upon for legal or investment decision purposes. IPAIT makes no warranty and assumes no legal liability for the accuracy, completeness, or usefulness of any information disclosed.
This document is provided by IPAIT. Accordingly, the presentation may not be produced in whole or part, and may not be delivered to any other persons without the consent of IPAIT. This Presentation is not a solicitation of an offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
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28. Presenter Laurie Mardis, CFA Director, Fixed Income
Laurie Mardis, CFA, is a member of the Miles Capital Management Committee as well as the Asset Allocation Committee. She is responsible for formulating investment strategies for Miles Capital’s P&C insurance client portfolios and, in conjunction with Allen Goody, is responsible for oversight of the investment team. Prior to joining Miles Capital, she was an investment manager with Wells Fargo, managing proprietary fixed income insurance and ERISA-qualified accounts as well as balanced separate accounts. Laurie received her B.B.A. and M.B.A. degrees from Drake University. She has earned her CFA designation and is a current member and a past president of the CFA Society of Iowa.
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