The Investment Division is responsible for investing money, transacting funds, ensuring sufficient collateral, and accounting for and reconciling funds held in the custody of the State Treasurer’s Office that are not immediately needed for government operations or to fund capital projects. The managed funds are temporary in nature, originating from three major sources: revenue collected by the State awaiting disbursement, legislative appropriations, and proceeds from bond issues invested short-term until disbursed for legislatively authorized capital projects.
Investments are restricted to the highest-quality securities according to ratings by the major rating agencies and to a term of not more than five years. The State Treasurer’s Chief Investment Officer and internal investment team discuss, agree upon, and recommend the security types and terms prior to purchase; secure post-trade review signatures; and report the executed portfolio activity to the State Treasurer’s Investment Committee and the State Board of Finance monthly. The State Treasurer’s Office contracts with an independent investment advisor who provides advisory services to the State Treasurer and staff.
State Treasurer’s Investment Committee
The State Treasurer’s Investment Committee, which is an advisory committee, meets monthly to review the investment portfolios for statutory compliance, quality, diversification, maturity, and performance; reviews portfolio controls, and collateral adequacy; and recommends investment procedural changes. Periodically, the committee recommends changes to the State Treasurer’s Investment Policy.
During FY 2015, the division earned approximately $23.5 million. At the end of FY 2015, the five portfolios total approximately $4.1 billion. All funds are invested in a manner that is in conformance with federal, State, and other legal requirements. The division is charged with observing the following priorities in making investment decisions, in the order described:
- Safety—The first priority must be accorded to the preservation and protection of the principal of the funds to be invested;
- Maintenance of Liquidity Needs—The second level of priority must be accorded to maintaining sufficient availability of cash, or the capacity to obtain it without sacrificing principal loss, in order to satisfy the reasonably anticipated, continuing operational requirements of the specific fund invested; and
- Maximum Return on Investments—The third priority must be accorded to maximizing investment return, consistent with the higher priorities accorded to the safety and liquidity of principal.
Fiscal agent bank balances are moneys held at the fiscal agent bank and are managed to a target balance after payment of checks, warrants, ACHs, and wire transfers processed by the State. All securities are held in custody and cash from these investment transactions moves to and from the fiscal agent bank and the custodial bank.
Investment Transactions Bureau
The movement of funds and recording of investment activity into the State Treasurer’s Office’s sub-ledger accounting system and the custody system is performed in the Investment Transactions Bureau. The bureau verifies all trade activity from trade documentation, enters the data into the sub-ledger accounting and custody systems, then performs trade compliance. The bureau also manages the overnight repurchase process. The bureau provides administrative management of the Local Government Investment Pool (LGIP), whereby they correspond with participants on a daily basis. The bureau also coordinates the annual Treasurer’s LGIP Stakeholder Conference.
A weekly reconciliation submission to the Standard & Poor’s rating agency for the LGIP is one of several reconciliation processes that take place on a regular basis.
Investment Portfolio Management
The State Treasurer’s Office makes statutorily defined investments that may be subject to further limitations or restrictions by the State Treasurer’s Investment Policy, which provides guiding principles for all investment decisions. All portfolios are invested by qualified and experienced in-house portfolio managers. The internal investment advisory team discusses, agrees upon, and recommends the security types and terms prior to purchase and reports the executed portfolio activity to the State Treasurer’s Investment Committee monthly. The bureau, with the assistance of the investment advisor, develops benchmarks against which the portfolios’ performance can be measured. The portfolio managers invest the available cash based upon the intended uses into one of the pools described below.
The General Fund Investment Pool
The General Fund Investment Pool consists of three main components:
- General Fund Liquidity Portfolio – Immediate cash needs of the State are to be met with the General Fund Liquidity Portfolio. The Liquidity Portfolio is expected to have minimal liquidity risk and all investments in this portfolio are constrained to less than a year;
- General Fund Core Portfolio – The Core Portfolio is comprised of balances that are not necessary to meet the short-term cash flow needs of the State. Accordingly, it may be invested over a longer term than the Liquidity Portfolio; and
- General Fund Tax and Revenue Anticipation Notes (TRAN) Portfolio – The TRAN portfolio may temporarily hold proceeds of short-term Tax and Revenue Anticipation Notes that are periodically issued and sold by the State Treasurer’s Office pursuant to NMSA 1978, Section 6-12A-5. There were no TRAN notes issued in FY 2015.
The State Treasurer’s Office makes a portion of the General Fund money available for investment in certificates of deposit (CD) with New Mexico banks and credit unions to foster the economy of their communities. The passage of House Bill 471, the “Linked Deposit Program”, during the 2007 legislative session expanded the CD program to allow the State Treasurer to place time deposits with qualifying financial institutions (those serving economically disadvantaged rural communities) at favorable rates.
During FY 2015 the General Fund reported $15.8 million in earnings. At fiscal year end, the General Fund Investment Pool had more than $1.8 million in unrealized gains.
The Bond Proceeds Investment Pools
The State Treasurer’s Office is responsible for investing bond proceeds from the issuance of State bonds sold by the State Board of Finance for capital projects, which include general obligation bonds, severance tax bonds, and supplemental severance tax bonds. These bonds are long-term obligations issued by the State of New Mexico to fund various infrastructure projects on behalf of the State of New Mexico.
The Bond Proceeds Investment Pool (BPIP) consists of two main components:
- Tax-Exempt Bond Proceeds Investment Pool – The Tax-Exempt BPIP holds proceeds from tax-exempt general obligation and severance tax bonds issued by the Board until they are expended on capital projects.
- Taxable Bond Proceeds Investment Pool – The Taxable BPIP hold proceeds from taxable severance tax bonds issued by the Board until expended on capital projects.
During FY 2015 the bond proceeds pools reported more than $6.5 million in earnings. At fiscal year end, the bond proceeds pools had $2.6 million in unrealized gains.
The Bond Proceeds Investment Pools facilitate the tracking of investment earnings and project draws to assure compliance with arbitrage restrictions and rebate requirements in accordance with the Federal Tax Reform Act of 1986.
Local Government Investment Pool (LGIP)
Click Here for Information on the 8th Annual LGIP Stakeholder Meeting
The LGIP is a fund created pursuant to NMSA 1978 6-10-10.1 to allow municipal, city, county, tribe, and quasi-governmental bodies to voluntarily remit money to the State Treasurer’s Office to receive professional money management on a pooled basis. The LGIP is rated “AAAm” by Standard & Poor’s, the highest principal stability credit rating awarded by Standard & Poor’s, and has been reaffirmed annually since August 2007.
The State Treasurer’s Office has expanded a statewide outreach program to inform eligible entities about the benefits of investing in the LGIP in concert with the New Mexico Municipal League and the New Mexico Association of Counties. Annual stakeholder meetings have been successful, informing LGIP participants of fund performance, investment strategies, and economic conditions.
During FY 2015 the Local Government Investment Pool reported more than $1 million in earnings for its participants.
The Severance Tax Bonding Fund Pool
The Severance Tax Bonding Fund Pool holds severance tax receipts pledged for debt service on severance tax bonds before being spent on permitted uses or transferred to the Severance Tax Permanent Fund held by the State Investment Council.
Overnight Repurchase Pool
The Repurchase Pool acts as a repository for cash balances from the portfolios managed by the State Treasurer’s Office and for cash from the Educational Retirement Association, the State Investment Council, and the Public Employees Retirement Association.