Post on 11-Aug-2020
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Louisiana Asset Management Pool, Inc.
Guyna G. Johnson
Director
S&P Global Ratings
Copyright © 2018 by S&P Global.
All rights reserved.2018 Annual Meeting -– October 26, 2018
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Private & Confidential 2
Presentation Objectives/Agenda
• Background on S&P Fund Ratings
• Key Elements of S&P PSFR Criteria:
• How to Determine an S&P Fund Rating
• Recent Trends in the MMF Industry
• Deep Dive into S&P Rated LGIPs
• Noteworthy Industry Topics
• Appendix (FCQR/FVR Criteria)
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Background on S&P Fund Ratings
Private & Confidential 3
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Overview of S&P Global Fund Ratings
Private & Confidential 4
• Standard & Poor’s has been rating fixed income funds since December 1983
• The Fund Ratings Group was officially formed in 1989
• Global team is comprised of 20+ fund analysts in 5 countries averaging 10+
years of fixed-income and fund ratings experience
• Provides ratings and evaluations for over 600 “funds” globally, from over 175
fund sponsors:
o 400+ Principal Stability Fund Ratings – Money Market Funds
o 200+ Fund Credit Quality and Volatility Rated funds – Fixed Income Funds
o Includes 80+ Local Government Investment Pools
o Includes Approximately 65 Liquidity Assessments
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Types of Ratings We Provide
Private & Confidential 5
1. Principal Stability Fund Ratings (PSFRs) – Globally 400+ funds with AUM over US$2.5
trillion, with the majority located in the US, followed by Europe, and the remainder located
in Australia, Singapore and Canada.
• A PSFR, commonly referred to as a money market fund rating, is a forward-looking
opinion about a fixed-income fund’s ability to maintain principal value (i.e.,
stable net asset value, or "NAV").
• PSFRs have an "m" suffix (e.g., 'AAAm') to distinguish the principal stability fund
rating from Standard & Poor's issue or issuer credit ratings.
2. Fund Credit Quality & Fund Volatility Ratings – Globally 200+ funds
• Fund Credit Quality Ratings (FCQRs) is a forward-looking opinion about the
overall credit quality of a fixed-income investment fund
o Represented by ‘f’ suffix after the traditional rating symbol (AAAf)
• A Fund Volatility Ratings (FVR) is a forward-looking opinion about a fixed-income
investment fund's volatility of returns relative to that of a "reference index"
denominated in the base currency of the fund
o Represented by ‘S’ scale (S1, S2, etc.); added in 1994 to complement FCQRs
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What do S&P ratings indicate?
Private & Confidential 6
A S&P Principal Stability Fund Rating Is…
• An opinion on relative safety of invested
principal.
• An indication of the extent to which a
portfolio is comprised of high credit quality
instruments.
• A weekly review of the investment holdings
and key fund statistics including but not
limited to NAV, WAM and asset flows.
• An indication of the extent to which a fund
provides principal stability.
• An independent, third party review of
management’s experience, operations and
controls.
A S&P Principal Stability Fund Rating Is NOT…
• A guarantee.
• An indication of the willingness and/or ability of
sponsor to provide support.
• A comment on the yield or performance.
• An indication investments are risk free.
• Impacted by fund management’s decision to
make payments in kind versus cash.
• Impacted by a fund management’s decision to
suspend redemptions (i.e. do not guarantee daily
liquidity).
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The Rating Process
Private & Confidential 7
1. Contract
The issuer requests a rating and
signs an engagement letter.
2. Pre-evaluation
Standard & Poor’s assembles
a team of analysts to review
pertinent information.
3. Management Meeting
Analysts meet with management
team to review and discuss
information.
6. Notification
S&P generally provides the issuer
with a pre-publication rationale for
its credit rating for fact-checking
and accuracy purposes.
5. Rating Committee
The committee meets to review
and discuss the lead analyst’s
rating recommendation and
presentation and then votes
on the credit rating.*
4. Analysis
Analysts evaluate information
and propose the rating to a
rating committee.
7. Publication
S&P typically publishes a press
release announcing the public
rating and posts the rating on
www.standardandpoors.com.
8. Surveillance of
Rated Issuers and
Issues
*S&P may allow for an appeal only if the issuer can provide new and significant information to support a potentially difficult rating conclusion.
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Surveillance (Monitoring) of Fund Ratings
Private & Confidential 8
• Dedicated Staff of Surveillance Analysts & Proprietary System (MFDB)
• Portfolio Holdings, Cash Flows & Risk Parameters are reviewed:
Weekly for PSFRs
Monthly for FCQR & FVRs
• Portfolio Level & Security Level Analysis
portfolio maturity
credit quality
illiquid and market sensitive securities
sector allocations
variable / floating rate instruments
net asset value (pricing) fluctuations
Comparison of CDS vs. current ratings
Highest yielding fund analysis
• Internal Monthly Surveillance Meetings to Review Material Events
• Frequent Communication with Fund Management
• Annual On-Site Management Review Meeting
• Review of Underlying Shareholder Concentration and Liquidity Adequacy
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Sample of Surveillance Summary Information
Private & Confidential 9
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List of S&P Rated LGIPs Under PSFR Criteria
Private & Confidential 10
Pool Name Rating Rating Date Pool Managed By State
Alaska Municipal League Investment Pool AAAm 5/6/2009 Non-Gov't Entity AK
California Asset Management Trust/Cash Reserve Portfolio AAAm 3/28/1995 Non-Gov't Entity CA
Colorado Local Government Liquid Asset Trust (COLOTRUST PLUS+) AAAm 4/24/1996 Non-Gov't Entity CO
Colorado Local Government Liquid Asset Trust (COLOTRUST PRIME) AAAm 11/16/1992 Non-Gov't Entity CO
Colorado Statewide Investment Pool - CSIP Liquid Portfolio AAAm 5/19/2017 Non-Gov't Entity CO
Colorado Surplus Asset Fund Trust (CSAFE) AAAm 11/13/1995 Non-Gov't Entity CO
Connecticut State Treasurer's Short-Term Investment Fund AAAm 1/2/1996 Gov't Entity CT
FL SAFE Stable NAV Fund AAAm 12/20/2007 Non-Gov't Entity FL
Florida Cooperative Liquid Assets Securities AAAm 4/21/2015 Non-Gov't Entity FL
Florida Education Investment Trust Fund AAAm 10/4/2010 Non-Gov't Entity FL
Florida PRIME AAAm 12/21/2007 Non-Gov't Entity FL
Illinois Funds - Money Market Fund (The) AAAm 10/9/1996 Gov't Entity IL
Illinois School District Liquid Asset Fund Plus - Liquid Class AAAm 11/13/1997 Non-Gov't Entity IL
Illinois School District Liquid Asset Fund Plus - Max Class AAAm 11/13/1997 Non-Gov't Entity IL
Illinois Trust AAAm 10/30/2002 Non-Gov't Entity IL
Iowa Schools Joint Investment Trust AAAm 5/26/2011 Non-Gov't Entity IA
Iowa Public Agency Investment Trust - Diversified Portfolio AAAm 6/1/2016 Non-Gov't Entity IA
Local Government Investment Cooperative AAAm 2/8/2006 Non-Gov't Entity TX
Lone Star Investment Pool - Corporate Overnight Fund AAAm 8/21/1995 Non-Gov't Entity TX
Lone Star Investment Pool - Government Overnight Fund AAAm 8/21/1995 Non-Gov't Entity TX
Louisiana Asset Management Pool AAAm 4/11/1995 Non-Gov't Entity LA
Maryland Local Government Investment Pool AAAm 4/18/2000 Non-Gov't Entity MD
Massachusetts Development Finance Agency Short Term Asset Reserve Fund AAAm 10/8/1991 Non-Gov't Entity MA
Michigan Cooperative Liquid Assets Securities System AAAm 3/10/2009 Non-Gov't Entity MI
Michigan Liquid Asset Fund Plus AAAm 11/13/1997 Non-Gov't Entity MI
Minnesota School District Liquid Asset Fund AAAm 4/20/2001 Non-Gov't Entity MN
Missouri Securities Investment Program -Liquid Series AAAm 11/13/1997 Non-Gov't Entity MO
MNTrust - Investment Shares AAAm 2/1/2011 Non-Gov't Entity MN
Nebraska Liquid Asset Fund AAAm 11/13/1997 Non-Gov't Entity NE
New Hampshire Public Deposit Investment Pool AAAm 2/3/2011 Non-Gov't Entity NH
S&P Global Ratings - Local Government Investment Pools (As Of August 2018)
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List of S&P Rated LGIPs Under PSFR Criteria cont.
Private & Confidential 11
Pool Name Rating Rating Date Pool Managed By State
New Jersey Asset & Rebate Management Program/Joint Account AAAm 2/13/1991 Non-Gov't Entity NJ
New Mexico Local Government Investment Pool AAAm 8/14/2006 Gov't Entity NM
New York Cooperative Liquid Assets Securities System AAAm 3/10/2009 Non-Gov't Entity NY
New York Liquid Asset Fund - MAX Portfolio AAAm 5/4/1998 Non-Gov't Entity NY
North Carolina Capital Management Trust - Cash Portfolio AAAm 10/21/1998 Non-Gov't Entity NC
Orange County Educational Money Market Fund AAAm 12/1/2008 Gov't Entity CA
Orange County Money Market Fund AAAm 12/1/2008 Gov't Entity CA
Pennsylvania INVEST Community Pool AAAm 8/26/1999 Gov't Entity PA
Pennsylvania INVEST Daily AAAm 2/8/1996 Gov't Entity PA
Pennsylvania Local Government Investment Trust/PLGIT Portfolio AAAm 11/21/1997 Non-Gov't Entity PA
Pennsylvania Local Government Investment Trust/PLGIT/ARM Portfolio AAAm 11/21/1997 Non-Gov't Entity PA
Pennsylvania School District Liquid Asset Fund - Government Transparency Series AAAm 7/8/2016 Non-Gov't Entity PA
Pennsylvania Local Government Investment Trust/PLGIT/PRIME AAAm 6/14/2013 Non-Gov't Entity PA
Pennsylvania School District Liquid Asset Fund - Max Series AAAm 11/13/1997 Non-Gov't Entity PA
State Treasury Asset Reserve of Ohio (STAR OHIO) AAAm 7/10/1995 Gov't Entity OH
Texas Cooperative Liquid Assets Securities System AAAm 3/10/2009 Non-Gov't Entity TX
Texas Short Term Asset Reserve (TexSTAR) Cash Reserve Fund AAAm 4/8/2002 Non-Gov't Entity TX
TexasTERM Local Government Investment Pool/TexasDAILY Portfolio AAAm 9/20/2001 Non-Gov't Entity TX
TEXPOOL AAAm 3/28/1995 Non-Gov't Entity TX
TEXPOOL Prime AAAm 12/9/2002 Non-Gov't Entity TX
VACo/VML Virginia Investment Pool (VIP) Stable NAV Liquidity Pool AAAm 10/27/2016 Gov't Entity VA
Virginia Local Government Investment Pool AAAm 6/15/2005 Gov't Entity VA
West Virginia Government Money Market Pool AAAm 8/9/2007 Non-Gov't Entity WV
West Virginia Money Market Pool AAAm 8/9/2007 Non-Gov't Entity WV
Wisconsin Investment Series Cooperative-Cash Management Series AAAm 12/16/2008 Non-Gov't Entity WI
Wisconsin Investment Series Cooperative-Investment Series AAAm 12/16/2008 Non-Gov't Entity WI
Wyoming Government Investment Fund Liquid Asset Series AAAm 3/15/2007 Non-Gov't Entity WY
Key
Gov't Entity (i.e. City, County, State)
Non-Gov't Entity (i.e. Private Firm/Sub-Advised)
Gov't Entity & Non-Gov't Entity (i.e. City, County, State, Private Firm/Sub-Advised)
S&P Global Ratings - Local Government Investment Pools (As Of August 2018)
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List of S&P Rated LGIPs Under FCQR/FVR Criteria
Private & Confidential 12
Pool Name Rating Rating Date Pool Managed By State
Arizona LGIP Pool 5 AAAf S1+ 11/10/2008 Gov't Entity AZ
CalTRUST Medium Term Fund A+f 12/6/2016 Non-Gov't Entity CA
CalTRUST Short Term Fund AAf S1+ 8/29/2006 Non-Gov't Entity CA
City of Anaheim Treasurer Investment Pool AA+f S1 7/7/2008 Gov't Entity & Non-Gov't Entity CA
City of Long Beach California Investment Pool AAf S1 11/14/2000 Gov't Entity & Non-Gov't Entity CA
Contra Costa County Investment Pool AAAf S1+ 11/19/2007 Gov't Entity & Non-Gov't Entity CA
FL SAFE Variable NAV Fund AAAf S1 10/17/2017 Non-Gov't Entity FL
Florida Fixed Income Trust 1-3 Year Fund AA+f S1 4/28/2015 Non-Gov't Entity FL
Florida Fixed Income Trust: Commercial Paper Pool AAAf S1+ 6/30/2016 Non-Gov't Entity FL
Florida Fixed Income Trust: Enhance Cash Portfolio AAAf S1 6/30/2016 Non-Gov't Entity FL
Florida Treasury Investment Pool A+f S2 12/10/2003 Non-Gov't Entity FL
Georgia Fund 1 AAAf S1+ 6/19/1995 Gov't Entity GA
Hillsborough County Investment Pool AAAf S1 3/31/2008 Gov't Entity & Non-Gov't Entity FL
Liquidity Fund of the Treasury of the State of Ohio AAAf S1+ 4/26/2017 Gov't Entity OH
Lone Star Investment Pool - Corporate Overnight Plus Fund AAAf S1+ 5/20/1999 Non-Gov't Entity TX
Sarasota County Investment Pool AAf S1 9/30/2008 Gov't Entity FL
State of Texas Treasury Pool AAAf S1 4/29/2002 Gov't Entity TX
VACo/VML Virginia Investment Pool (VIP) 1-3 Year High Quality Bond Fund AAf S1 1/23/2014 Gov't Entity VA
Ventura County Treasury Portfolio AAAf S1+ 6/5/1996 Gov't Entity CA
Virginia Local Government Investment Pool EM AAAf S1 7/20/2017 Gov't Entity VA
Key
Gov't Entity (i.e. City, County, State)
Non-Gov't Entity (i.e. Private Firm/Sub-Advised)
Gov't Entity & Non-Gov't Entity (i.e. City, County, State, Private Firm/Sub-Advised)
S&P Global Ratings - Local Government Investment Pools (As Of August 2018)
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Summary of Main Differences Amongst ‘m’ & ‘f’ ratings
Private & Confidential 13
Principal Stability Fund Ratings; aka Money Market
Fund Ratings (eg. ‘AAAm’)
Fund Credit Quality & Volatility Ratings; aka Bond
Fund Ratings
(eg. ‘AAAf/S1’)
Eligible
Investments
(According to
Rating)
The criteria states an issuer must have a short term rating
of at least ‘A-1’ (A-2 counterparty rating for overnight
repo). If it is not rated by S&P but has the highest short-
term rating of another NRSRO, it must either be backed
by a highly rated LOC provider, or have an S&P long term
rating of at least ‘AA’.
The securities must be rated by S&P or another NRSRO. If
it is unrated by S&P, certain notching rules may apply.
Ratings
Breakdown
For ‘AAAm’ rated funds, at least 50% must be in ‘A-1+’,
with the other 50% in ‘A-1’ securities. For ‘AAm’ funds,
20% is required in ‘A-1+’, with the other 80% in ‘A-1’
securities. For ‘Am’ funds, 100% may be in ‘A-1’. (A-1
amounts include up to 10% in repo with A2 rated
counterparties)
There is no minimum requirement, but the outcome of the
rating will be dependent on our “ratings matrix.” The Fund
Credit Quality Ratings Matrix takes into account the rating
on the security (long term or short term), the maturity (< =
31 days, > 31 but < = 92 days, > 92 but < = 365 days, >
365 days), and the percentage held by the fund in each
security.
Types of
Securities
Common security types are Repurchase Agreements,
Fixed and Floating Corporate Bonds, Commercial Paper,
Certificates of Deposits, U.S. Treasury Securities, U.S.
Agency Securities, etc.
Common security types are Fixed and Floating Rate
Corporate Bonds, Commercial Paper, Certificates of
Deposits, U.S. Treasuries, U.S. Agencies, Municipal
Bonds, Mortgage Backed Securities, etc.
Reporting
FrequencyFund must submit weekly surveillance. Fund must submit monthly surveillance.
NAV
Shares typically exchanged at $1.00 per share. While this
may give the impression, NAVs do not move, they can
and do. We monitor these funds to make sure any
movements don’t trigger paying investors less than $1.00
per share (typically look for less than 0.15% deviation)
Shares typically exchange at $10.00 per share although
some may have $2.00 $0.50 and some even $1.00 per
share. No explicit thresholds on share price deviation but
fluctuations in the NAV may impact the fund volatility rating.
Weighted
Average Maturity
(WAM)
Guidelines
‘AAAm’ - 60 days, ‘AAm’ - 75 days, ‘Am’ and ‘BBBm’ - 90
days
There is no WAM limit, but the longer the maturity dates,
the more likely it is that the security will contribute to a
lower rating. In addition the longer the duration, the more
likely the fund volatility rating will be higher.
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Key Elements of S&P’s PSFR Criteria
Private & Confidential 14
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Principal Stability Fund Ratings Definitions
Private & Confidential 15
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PSFR Summary Framework: Key Areas of Assessment
Private & Confidential 16
MaturityNet Asset Value (NAV) Stability
LiquidityDiversificationCredit Quality
Preliminary PSFR
(initial rating level)
Management –
Credit Research
and Analysis
Management –
Stress
Testing/Internal
Controls
Management –
Pricing
Management –
Breaches
Management –
Experience
Final PSFR
(final rating level)
Zero to Four Categories of Downward Adjustment
Qualitative
Quantitative
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Key Criteria Elements – Principal Stability Fund Rating (MMF)
Private & Confidential 17
Credit Quality
• Minimum 50% exposure to securities A-1+ and A-1 securities <= 5 business days
• Maximum 50% exposure to securities A-1 > 5 business days and overnight repurchase agreements
with A-2 rated counterparties (10% limit included within 50%)
WAM and WAM (Final)
• 60 days and 90 – 120 days*
Cure Periods Apply For Breaches of Quantitative Metrics including:
• NAV / Diversification / 10% illiquid basket / Overall credit quality or an issuer downgrade below A-1
Monitoring Frequency
• Weekly monitoring of portfolio holdings and summary statistics and annual onsite management review
meeting
Annual On-site Management Review Meeting
• The fund rating is based on a fund’s independent ability to maintain principal stability and does not
include a fund sponsor’s willingness and/or ability to support the fund’s NAV.
* May increase to 120 days if a fund invests in floating rate sovereigns or government-sponsored entities rated AA- or higher
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Cure Periods for PSFR Criteria Breaches
Private & Confidential 18
Metric/Threshold Category Cure Period*
NAV Up to 5 business days
Downgrades below ‘A-1’
% of portfolio
≤0.5% = 397 calendar days
>0.5% ≤ 1.0% = 120* calendar days
>1.0% ≤ 5.0% = 60* calendar days
>5% = 14 calendar days
* Regardless of the short-term rating, if the long-term rating is 'BBB+' and on CreditWatch
negative or 'BBB' or lower, the cure period drops to seven calendar days.
Maturity 20 business days
10% illiquid/limited liquidity bucket 20 business days
Diversification 20 business days
Overall Credit Quality
(i.e., 50% maximum in A-1)
10 business days
* NOTE: The cure period related to a breach applies only to that specific metric/threshold and to no others and
begins on the date the breach occurs. All cure periods are based on a fund's NAV remaining within the ranges
outlined for each rating category (i.e., AAAm - 0.25%)
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Recent Trends in MMF Industry:
Asset Flows, Spreads, and Maturities
Private & Confidential 19
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Private & Confidential 20
Source: Crane Data
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1238 12471216
11831161
1054
998970 982 997
976956 957 964 970
650
750
850
950
1050
1150
1250
1350
Number of Money Market Funds
Private & Confidential 21
• The number of money funds tracked by Crane Data fell to 998 in August 2016, the first time the number of MMFs
has fallen below 1,000 in the 10 years Crane Data has been publishing.
• The decrease in the number of money market funds are primarily caused by Prime and Tax-Exempt funds
consolidating and/or closing.
• The number of money market funds jumped back up to nearly 1000 in May of 2017 due to the addition of ~20
Treasury/Government funds before again declining due to removal of ~50 Tax Exempt funds
Source: Crane Data's Money Fund Intelligence
Change in Number of US Money Market Funds
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Private & Confidential 22
• MMFs were originally created to give investors preservation of capital, liquidity, and yield but the rule changes
have reduced the ability for investors to get to all three in one product, so the investor has to choose
• The Crane Prime Institutional Money Fund Index has increased its assets 17.4% in the last 12 months. The
asset increase is attributed to yield spreads widening
Trends in MMF Assets
Source: Crane Data's Money Fund Intelligence
-
200,000.00
400,000.00
600,000.00
800,000.00
1,000,000.00
1,200,000.00
CRANE TREAS INSTIT MF INDEX CRANE GOVT INSTIT MF INDEX CRANE PRIME INST MF INDEX
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Private & Confidential 23
Spread between Government, Treasury, & Prime MMFs
Source: Crane Data's Money Fund Intelligence
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2/28/15 5/31/15 8/31/15 11/30/15 2/29/16 5/31/16 8/31/16 11/30/16 2/28/17 5/31/17 8/31/17 11/30/17 2/28/18 5/31/18 8/31/18
CRANE TREAS INSTIT MF INDEX CRANE GOVT INSTIT MF INDEX CRANE PRIME INST MF INDEX
• Yields continue to respond quickly to FOMC actions. As rates have increased, spreads have given opportunities for
investors to gain additional yield.
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Maturity Exposures
Private & Confidential 24
05
1015202530354045
Day
s
WAM (Days)
CRANE PRIME INST MF INDEX CRANE GOVT INSTIT MF INDEX
CRANE TAX EXEMPT INDEX
0
20
40
60
80
100
120
Day
s
WAL (Days)
CRANE PRIME INST MF INDEX CRANE GOVT INSTIT MF INDEX
CRANE TAX EXEMPT INDEX
Source: Crane
• Prime money market funds’ WAM/WAL were significantly shortened leading up to 2a-7 reform in Oct. 2016 but have since
normalized.
• As interest rates continue to rise, funds have been managing duration risk by shortening its WAM.
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Deep Dive Into S&P Rated LGIPs
Private & Confidential 25
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Investment Trends: Local Government Investment Pools
Private & Confidential 26
Source: Standard & Poor’s
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
20
40
60
80
100
120
140
160
Au
g-0
5
Feb
-06
Au
g-0
6
Feb
-07
Au
g-0
7
Feb
-08
Au
g-0
8
Feb
-09
Au
g-0
9
Feb
-10
Au
g-1
0
Feb
-11
Au
g-1
1
Feb
-12
Au
g-1
2
Feb
-13
Au
g-1
3
Feb
-14
Au
g-1
4
Feb
-15
Au
g-1
5
Feb
-16
Au
g-1
6
Feb
-17
Au
g-1
7
Feb
-18
Au
g-1
8
Bill
ion
s o
f U
S D
ola
lrs
S&P Rated LGIP Net Assets
Standard & Poor's LGIP Index/All ($) Standard & Poor's LGIP Index/Gen Purpose (%)
Standard & Poor's LGIP Index/Government (%)
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Investment Trends: Local Government Investment Pools
Private & Confidential 27
Source: Standard & Poor’s
0
10
20
30
40
50
60
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Au
g-0
5
Feb
-06
Au
g-0
6
Feb
-07
Au
g-0
7
Feb
-08
Au
g-0
8
Feb
-09
Au
g-0
9
Feb
-10
Au
g-1
0
Feb
-11
Au
g-1
1
Feb
-12
Au
g-1
2
Feb
-13
Au
g-1
3
Feb
-14
Au
g-1
4
Feb
-15
Au
g-1
5
Feb
-16
Au
g-1
6
Feb
-17
Au
g-1
7
Feb
-18
Au
g-1
8
We
igh
ted
Ave
rage
Mat
uri
ty
7 D
ay N
et
Yie
ld
S&P Rated LGIP Index Yield and WAM(R)
Standard & Poor's LGIP Index Yield/All - 7 Day Net Yield Standard & Poor's LGIP Index WAM(R)/All
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S&P Global Principal Stability Rated GIP Indices
Private & Confidential 28
S&P Rated GIP Index 1.61% 1.61% 1.86% 1.87% 43 $57.4
(Week Ended August 30, 2002) Billion
S&P Rated
Government Investment
Pool Indices
7 Day
NET
Yield %
30 Day
NET
Yield %
7 Day
GROSS
Yield %
WAM (R)
(Days)
S&P Rated GIP Index/ALL 1.98% 1.97% 2.16% 2.14% 34 66 $146.1
(Week Ended August 31, 2018) Billion
S&P Rated GIP Index/Government 1.84% 1.82% 2.01% 2.01% 27 75 $32.1
(Week Ended August 31, 2018) Billion
S&P Rated GIP Index/G.P. Taxable 2.02% 2.00% 2.19% 2.18% 36 64 $114.0
(Week Ended August 31, 2018) Billion
30 Day
GROSS
Yield %
Reported Weekly By Standard & Poor’s
Note: Indices comprised Of ‘AAAm’ Rated Government Investment Pools
To View In Bloomberg: LGIP <Index> <Go>
Total
Assets
WAM (F)
(Days)
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S&P Global’s Principal Stability Rated GIP Index – Quartile Rankings
Private & Confidential 29
7 Day 30 Day
Ranking Top Yield Low Yield Top Yield Low Yield
Gross Yields (%)
Top Quartile 2.29 2.22 2.25 2.17
Second Quartile 2.22 2.15 2.17 2.10
Third Quartile 2.15 2.00 2.10 1.93
Fourth Quartile 2.00 1.80 1.93 1.54
Net Yields (%)
Top Quartile 2.19 2.07 2.14 2.00
Second Quartile 2.07 1.92 2.00 1.88
Third Quartile 1.92 1.81 1.88 1.74
Fourth Quartile 1.81 1.36 1.74 1.30
(As of June 29, 2018)
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Noteworthy Industry Topics
Private & Confidential 30
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Private & Confidential 31
• Interest Rate Policy
• Rates began to rise in December 2015
• FOMC raised rates three times in 2017 and seven times in three years
thus far
• Fed is expected to raise rates three-four times in 2018
• Investor sentiment towards Prime MMFs – Possible shift back?
• Rising rates should lead to added yield opportunities for MMF
shareholders
• We have noted minimal fluctuations with Prime Fund NAVs
• Supply and demand imbalances in money markets have produced wider
spread levels between prime and gov. MMFs
• Developments on Benchmark Reform
• Secured Overnight Financing Rate (SOFR) designated to replace USD
LIBOR
• LIBOR expected to remain till end of 2021
• SOFR is transaction based vs. the LIBORs current ‘expert judgement’
• LIBOR currently used as benchmark rate for over $350 trillion ranging
across multiple investment products according to ICE Benchmark
Administration
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Private & Confidential 32
SOFR Issuances
• Nearly $10 billion of bonds tied to the Secured Overnight Financing Rate (SOFR) have been issued.
• To eliminate index risk, the bonds use daily reset periods.
Source: Bloomberg, Capital IQ, S&P Global Ratings
Issuer Issue Date Maturity Tenor Size (millions)
Pricing
(SOFR +
spread)
Industry S&P Rating
Fannie Mae 7/30/2018 1/30/2019 6 Months 2,500.00 +8 bps Government Agencies AA+
Fannie Mae 7/30/2018 7/30/2019 12 Months 2,000.00 +12 bps Government Agencies AA+
Fannie Mae 7/30/2018 1/30/2020 18 Months 1,500.00 +16 bps Government Agencies AA+
World Bank 8/21/2018 8/21/2020 24 Months 1,000.00 +22 bps Supranationals AAA
Credit Suisse 8/21/2018 2/21/2019 6 Months 100.00 +35 bps Banks A
Sheffield Receivables Corp 8/24/2018 11/28/2018 3 Months 525.00 +35 bps ABCP A-1
Metropolitan Life Global Funding I 9/7/2018 9/7/2020 24 Months 1,000.00 +57 bps Life Insurance AA-
Wells Fargo Bank, NA 9/21/2018 9/20/2019 12 Months 125.00 +35 bps Banks A+
Wells Fargo Bank, NA 9/25/2018 3/25/2020 18 Months 1,000.00 +48 bps Banks A+
Tribourough Bridge & Tunnel Authority 9/26/2018 9/26/2019* 12 Months 107.28 +43 bps** Municipal AA-
*Soft put date
**SOFR x 0.67 + 0.43 bps
Benchmark Min Max Avg Libor - SOFR
SOFR 1.65 2.12 1.84 -
Libor 1m 1.88 2.22 2.03 0.188943237
Libor 3m 2.30 2.37 2.34 0.493432313
*Comparison of benchmarks since SOFR's official publication on April 2, 2018
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Across the Pond – European MMF Reform
Private & Confidential 33
• Rules were approved on May 16, 2017 by the European Council
• Took effect on July 21, 2018
• Transition for full compliance will be January 21, 2019
• Two types of Funds Short-Term MMFs and Standard MMFs
• Short-Term MMFs (CNAV, LVNAV, VNAV)
• Standard MMFs (VNAV)
• We view the new rules as a positive development for the industry
• Increased Transparency
• Enhanced liquidity
• Focused on Investor Protection
• New rues will likely create a more homogenous MMF landscape
- May lead to consolidation/merger activity
- We could see reduced competition in the market place
• We do not anticipate material rating changes resulting from the new rules as our
criteria is generally more conservative than the newly imposed rules.
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Appendix
Private & Confidential 34
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Key Elements of S&P’s FCQR Criteria
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Fund Credit Quality Rating- What is a FCQR?
An S&P Global Fund Credit Quality Rating, also known as a “bond fund rating,” is a
forward-looking opinion about the overall credit quality of a fixed-income investment fund.
The ratings reflect the credit quality risks of the portfolio investments and counterparty
exposures, and the risk of the fund manager’s ability and willingness to maintain current
fund credit quality.
Fund credit quality ratings are identified by the 'f' subscript (e.g. ‘AAAf’) to distinguish them
from Standard & Poor’s issue or issuer credit ratings. Unlike traditional credit ratings (e.g.,
issuer credit ratings) that we assign to debt issued by an issuer, a fund credit quality rating
does not address a fund’s ability to meet “payment obligations”.
We assign Fund Credit Quality Ratings to bond funds and other managed pools of fixed-
income assets, including cash-enhanced funds, exchange traded funds (ETFs), fixed-
income hedge funds, local government investment pools, unit investment trusts, and
preferred shares trusts.
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Private & Confidential 37
Fund Credit Quality Ratings Definitions
Category* Definition
AAAf The credit quality of the fund's portfolio exposure is extremely strong.
AAf The credit quality of the fund's portfolio exposure is very strong.
Af The credit quality of the fund's portfolio exposure is strong.
BBBf The credit quality of the fund's portfolio exposure is adequate.
BBf The credit quality of the fund's portfolio exposure is weak.
Bf The credit quality of the fund's portfolio exposure is very weak.
CCCf The credit quality of the fund's portfolio exposure is extremely weak.
CCfThe fund’s portfolio has significant exposure to defaulted or near defaulted assets and/or counterparties.
Df The fund’s portfolio is predominantly exposed to defaulted assets and/or counterparties.
* The ratings from 'AAf' to 'CCCf' may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
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Summary of FCQR Methodology
Fund Credit Quality matrix
• Factors are all positive (non-zero) and derived for modified
rating levels (e.g. ‘AA+’, ‘AA-‘, ‘A+, ‘A-‘, etc.)
• Factors applied to assets rated ‘CCC-‘ or lower including in
the ‘CC’, ‘C’, and ‘D’ categories
• Thresholds adjusted
• Maturity buckets expanded from 3 to 4 (bucket added for
securities maturing within 1 month.
Determining FCQR in 4 Steps
• The quantitative assessment determines the preliminary
FCQR
• Management and portfolio risk assessments modify
preliminary FCQR
• Final FCQR is determined after applying a one notch
adjustment for comparable ratings analysis, if warranted.
Criteria Item: Impact For FCQR:
Qualitative Assessment
• Assess Management and Organization, Risk Management
& Compliance, Credit Culture, and Credit Research as
“strong”, “adequate”, or “weak”. FCQR is lower than the
preliminary FCQR if any are weak.
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Summary of FCQR Methodology
Credit Quality• We determine and apply rating inputs when a Standard &
Poor’s rating has not been assigned to an issue, issuer, or
counterparty
Counterparties/Derivatives/
Certificates of Deposit• Clarification on how each considered in the qualitative and
quantitative assessment
Criteria Item: Impact For FCQR:
Portfolio Risk Assessment &
Sensitivity Tests
• Assess Concentration Risk, Counterparty Risk, Liquidity,
and Fund Rating cushion.
• Sensitivity tests performed if Portfolio Risk Assessment is
negative provide forward looking portfolio stress analysis
Breaches & Cure Periods
• Thresholds established for ‘active’ breaches and introduce
the concept that persistent ‘passive’ breaches (i.e. FCQR
scores that no longer support the preliminary assigned
FCQR), even if repeatedly cured, results in downgrade of
the FCQR
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Key Elements of S&P’s FVR Criteria
Private & Confidential 40
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• An S&P Global Fund Volatility Rating is a forward-looking opinion about a fixed-income
investment fund's volatility of returns relative to the risk of a portfolio composed of
government securities and denominated in the base currency of the fund. Fund volatility
ratings are not globally comparable.
• Fund volatility ratings provide regional and domestic markets with our opinion of the likelihood
of a fund to exhibit volatility of returns as compared to returns of regional or domestic
government securities.
• Volatility ratings reflect S&P Global Ratings' view of the fund's sensitivity to interest rate risk,
credit risk, and liquidity risk, as well as other factors that may impact a fund’s returns such as
investment diversification, leverage, management, and other factors.
• FVRs typically accompany fund credit quality ratings (e.g., 'Af/S3') to communicate our
opinion of risks not addressed by fund credit quality ratings (FCQRs). For some funds, we
may assign an FCQR without an accompanying FVR. For example, this could occur for new
funds with insufficient track records, which limits our ability to assess volatility of returns.
When this occurs, we note the FVR as NR (not rated).
Private & Confidential 41
Fund Volatility Rating- What is a FVR?
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Private & Confidential 42
Fund Volatility Rating - Scale & DefinitionsCategory* Definition
S1
Funds that exhibit low volatility of returns comparable to a portfolio of short duration government securities, typically maturing within one to three years and denominated in the base currency of the fund, are rated S1.
Within this category, certain funds are designated with a plus sign (+). This indicates the fund's extremely low volatility of monthly returns compared to a portfolio of short duration government securities representing highest quality fixed-income instruments available in each country or currency zone with a maturity of 12 months or less. In the absence of short duration government securities in a given country or currency zone, the volatility of one year bank deposit rates denominated in the base currency of the fund and offered by commercial banks will be used as a benchmark proxy for S1+ rated funds.
S2Funds that exhibit low to moderate volatility of returns comparable to a portfolio of short to medium duration government securities, typically maturing within three to seven years and denominated in the base currency of the fund, are rated S2.
S3Funds that exhibit moderate volatility of returns comparable to a portfolio of medium to long duration government securities, typically maturing within seven to 10 years and denominated in the base currency of the fund, are rated S3.
S4Funds that exhibit moderate to high volatility of returns comparable to a portfolio of long duration government securities, typically maturing beyond 10 years and denominated in the base currency of the fund, are rated S4.
S5
Funds that exhibit high to very high volatility of returns comparable to a portfolio of long duration government securities, typically maturing beyond 10 years and denominated in the base currency of the fund, are rated S5. These funds may be exposed to a variety of significant portfolio risks such as high concentration risks, high leverage, and investments in complex structured and/or illiquid securities.
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Summary of FVR Methodology
Clarify the Quantitative
Assessment• Statistical comparison of the fund’s historical returns to
those of a reference index
Determining FVR in 4 Steps
• The quantitative assessment determines the preliminary
FVR
• Portfolio risk and Management assessments modify
preliminary FVR
• Final FVR is determined after applying a one notch
adjustment for comparable ratings analysis, if warranted.
Criteria Item: Impact For FVR:
Qualitative Assessment
• Assess Management and Organization, Risk Management
& Compliance, Credit Culture, and Credit Research as
“strong”, “adequate”, or “weak”. FVR is lower than the
preliminary FVR if any are weak.
Portfolio Risk Assessment • Assess Duration, Credit Exposure, Liquidity, Derivatives,
Leverage, Foreign Currency & Concentration
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Summary of FVR Methodology
FVR Scale • The FVR scale ranges from ‘S1+’ to ‘S5’ The ‘S6’ category
is no longer used in the new FVR scale.
Systematic assignment of FVR
alongside FCQR
• FVRs will typically accompany FCQRs (e.g., 'Af/S3') to
communicate our opinion of risks not addressed by fund
credit quality ratings (FCQRs).
Other Items: Impact For FVR:
Comparable Ratings Analysis• Compare the fund with peers to determine whether a final
adjustment of one rating category up or down is warranted
to determine the ‘final’ FVR.
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Thank you
Guyna G. Johnson
Director
S&P Global – Financial Services Ratings
130 E. Randolph Street
Chicago, IL 60601
P (312) 233-7008
C (312) 636-4905
Guyna.johnson@spglobal.com
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46Private & Confidential