Looking Under the Hood

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Looking Under the Hood

An In-Depth Analysis of Local Government Investment Pools Available to Colorado Public Entities

August 26, 2021

Scott Prickett, CTP Deputy Chief Investment Officer

Julie Hughes Senior Portfolio Strategist

1875 Lawrence St, Suite 920, Denver, CO 80202

For Educational Purposes Only. Please see Disclosures at the end of this presentation.

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Section 1 Section 2 Section 3

Agenda

Colorado LGIP’s – A Timeline

Colorado LGIP Investment Options

Local Government Investment Pool (LGIP) Legal Structure and Definitions

Chandler Asset Management | 2

Section 4 Section 5

Portfolios and Security Types

GASB 79

Section 6 Reporting, Cyber Security, and Service Providers

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Section 1 | Colorado LGIP’s - Timeline

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Colorado LGIP Timeline

• COLOTRUST established in 1985

• Current Investment Advisor - Public Trust Advisors, LLC

• CSAFE established in 1988

• Current Investment Advisor – Morgan Stanley Smith Barney, LLC

• CSIP established in 2017

• Current Investment Advisor – PFM Asset Management

• (July 2021- PFM announces agreement to sell PFM Asset Management,

LLC to U.S. Bancorp Asset Management)

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Colorado LGIP Timeline

1985 1988 1995 2017 2018 2021

(3 Mo. T-Note)

8.08% 6.02% 5.65% 0.50% 1.40% 0.08%

Source: Bloomberg, COLOTRUST,CSAFE and CSIP

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US 3-Month Bill 1985 to Present

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Section 2 | Local Government Investment Pool (LGIP)

Legal Structure and Definitions

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Colorado LGIP’s – Legal Structures and Definitions

Colorado LGIP Governing Statutes

• C.R.S. 24-75-601.1(i) – Legal Investments of Public Funds

• C.R.S. 24-75-702 – Local Governments Authority to Pool Surplus Funds

•

(1) In accordance with this part 7, it is lawful for any local government to pool any money in its treasury , which is not immediately required to be disbursed, with the same money in the treasury of any other local government and to invest such money in a local government investment pool trust fund in order to more efficiently and safely invest their funds.

• C.R.S. 24-75-704 – Investments – Limitations

•

(1) The investments made with local government investment pool trust fund moneys shall be limited to those instruments which all participating local governments may individually invest In by law. The trust shall not be used to circumvent such statutory limitations on the

investment authority of participating local government entities.

Source: Colorado Legal Resources (Official Publisher of Colorado Revised Statutes.)

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Colorado LGIP’s – Legal Structure and Definitions

• “The Pooling Act” – Allows local governments to collectively pool funds

• Colorado Revised Statutes (C.R.S) Part 7 of Article 75 of Title 24.

LGIP

Counties Special

Districts

Authorities School

Districts Municipalities

• Efficiencies Through Economies of Scale

• Maximize Net Interest Earnings

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Colorado LGIP’s – Legal Structure and Definitions

Chandler Asset Management | 10 Pooling Act

C.R.S 24-75-7

Authority to Pool Surplus Funds

Legal Investments

Indenture of Trust

Information Statement

Investment Policies

24-75-601

Allowable Investments for CO Public Funds

Provides the Required Legal Details of Operating the LGIP

Provides Key Facts Such as Account Minimums and How to Place Transactions

Unless authorized by Trustees, LGIP’s Limit their Investment Instruments to Those Permitted Under C.R.S 24-75-601

Colorado LGIP’S

Source: Colorado Revised Statutes

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Section 3 | Investment Options

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Colorado LGIP’s – Investment Options

• “Government Pools”

• COLOTRUST Prime

• “Prime Pools”

• COLOTRUST Plus+

• CSAFE Cash

• CSIP Liquid

• “Enhanced Cash”/”Term Products”

• CSAFE Core

• CSIP Term Product

• COLOTRUST EDGE

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Section 4 | Portfolios and Security Types

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Portfolios and Sector Allocations

Government Portfolio

Collaterized Bank Deposits

23.6%

Government Agency 32.0%

US Treasury 20.2%

Repo 14.2%

Money Market Funds 10.0%

COLOTRUST Prime June 30, 2021

Source: Bloomberg, COLOTRUST as of 6/30/21

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Portfolios and Sector Allocations

COLOTRUST Prime

Total Net Assets (millions) $768

WAM 43 Days

WAL 79 Days

7-Day yield 0.005%

Expense Ratio 0.11%

NAV $1.00

S&P Rating AAAm

Source: COLOTRUST June 30, 2021 Quarterly Report (unaudited) and Website

Government Portfolio June 30, 2021

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Government Portfolio Definitions

•

Collateralized Bank Deposits: Deposits with eligible public depository institutions collateralized with pledged securities per the Public Deposit Protection Act ( C.R.S., 11-10.5-101, et. seq.). Although FDIC insurance covers deposits up to $250,000 for each entity, deposits above this FDIC limit must be collateralized through the pledging of appropriate securities to ensure the safety of public funds.

•

Federal Agencies: Any obligation issued by a government-sponsored entity (GSE) or a federally related institution.

Obligations of GSEs such as Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), Federal Home Loan Bank (FHLB), and Federal Farm Credit Bank System (FFCB) are not guaranteed by the full faith and credit of the US government. Agency securities issued by federal government agencies other than GSEs, such as Government National Mortgage Association (GNMA) are backed by the full faith and credit of the U.S. government.

•

US Treasury Obligations: Securities issued by the U.S. Treasury and backed by the full faith and credit of the United States. Treasuries are considered to have no credit risk and are the benchmark for interest rates on all other securities in the U.S. and overseas. The Treasury issues both discounted securities and fixed coupon notes and bonds. Securities issued with initial maturities of one year or less are issued as discounted instruments and are called Treasury bills. Securities issued with initial maturities of two to ten years are called Treasury notes and pay interest semi-annually. Securities issued with initial maturities greater than ten years are called Treasury bonds and pay interest semi-annually.

Source: Colorado Revised Statutes, FINRA

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Government Portfolio Definitions

•

Money Market Funds: Type of mutual fund that invests in highly liquid, near-term instruments. These

instruments include cash, cash equivalent securities, and high-credit-rating, debt-based securities with a short- term maturity. Money market funds are intended to offer investors high liquidity with a very low level of risk. CRS 24-75-601 requires investment in funds with a constant share price, no load, and a maximum stated maturity and weighted average maturity in accordance with Rule 2a-7 of the Investment Company Act of 1940.

•

Repurchase Agreements (“Repo”): Short-term purchases of securities with a simultaneous agreement to sell the securities back at a higher price. From the seller’s point of view, the same transaction is a reverse repurchase agreement.

Source: Colorado Revised Statutes, FINRA

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Portfolios and Sector Allocations

Prime Portfolios June 30, 2021

Commercial Paper (all Categories) 81.2%

MMF 6.5%

Repo 4.6%

Neg. CD's 3.4%

US Treasuries

3.3% Bank

Deposits 1.0%

COLOTRUST Plus +

Commercial Paper (all Categories) 72.4%

MMF 12.6%

CD's (Fix/Float)

11.6%

Bank Deposits

3.4%

CSAFE Cash

Commercial Paper 41.9%

Neg. CD's 28.9%

US Treasuries 19.2%

Corporate Notes 4.0%

Federal Agencies 1.3%

Repo 4.8%

CSIP Liquid

Source: Bloomberg, COLOTRUST,CSAFE and CSIP Quarterly Reports June 30, 2021 - Unaudited

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Portfolios and Sector Allocations

COLOTRUST Plus + CSIP Liquid CSAFE Cash

Total Net Assets (millions) $11,979 $1,570 $3,353

WAM 50 Days 57 Days 52 Days

WAL 78 Days 85 Days 84 Days

7-Day yield 0.036% 0.02% 0.02%

Expense Ratio 0.12% 0.14% 0.126%

NAV $1.00 $1.00 $1.00

S&P Rating AAAm AAAm AAAm

Source: COLOTRUST,CSAFE and CSIP as of 6/30/21

“Prime Portfolios” June 30, 2021

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Prime and Enhanced Cash Portfolios – Additional Definitions

•

Commercial Paper: The short-term unsecured debt of corporations.

•

Negotiable CD: A short-term debt instrument that pays interest and is issued by a bank, savings or federal association, state or federal credit union, or state-licensed branch of a foreign bank. Negotiable CDs are traded in a secondary market and are payable upon order to the bearer or initial depositor (investor).

•

Asset-backed Commercial Paper (ABCP): A short-term money-market security that is issued by a special purpose vehicle (SPV) or conduit, which is set up by a sponsoring financial institution. The securities are supported by collateral, such as pools of installment loans or leases or by pools of revolving lines of credit.

•

Corporate Note: A direct loan from an investor to a corporation, either secured or unsecured that pays interest periodically (usually semi-annually) and returns principal at maturity.

Source: FINRA

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Portfolios and Sector Allocations

Enhanced Cash Portfolios/Term Product Portfolio June 30, 2021

COLOTRUST Plus + 4.3%

CD's 3.1% MMF 1.5%

COLOTRUST Edge

CSAFE Cash 24.9%

Asset Backed Commercial Paper

19.0%

CD's 12.9%

Corporate

Note 11.0% US Agency (float)/Coll.

Bank Dep. 1.0%

CSAFE Core

Fin. Co. Commercial Paper 80.0%

Asset Backed Commercial Paper 18.0%

CD's 10.0%

CSIP Term

⁽¹⁾

Series Dec 2022

Source: Bloomberg, COLOTRUST,CSAFE and CSIP Quarterly Reports – Unaudited as of 6/30/21

(1) CSIP Term Series (Dec. 22) – This is a fixed rate, fixed income investment. The rate and maturity are determined at the time of purchase. Please contact CSIP directly with any specific questions.

* All Percentages Above Rounded to the Nearest 10^thDecimal

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Portfolios and Sector Allocations

COLOTRUST Edge CSIP Term

(Series Dec. 22) CSAFE Core

Total Net Assets (millions) $128⁽¹⁾ $315 $2,519⁽²⁾

WAM 164 Days 170 Days 52 Days

WAL 179 Days 170 Days 123 Days

7-Day yield/180-Day Net Yield* 0.15% 0.03%* 0.086%

Expense Ratio 0.12% 0.14% 0.15%

NAV ⁽³⁾ $10.00 N/A $2.00

Fitch Rating AAAf/S1 AAAf AAAf/S1

(1) Inclusive of $5,445,341 COLOTRUST Plus+

(2) Inclusive of $625,789,077 CSAFE Cash LGIP

(3) Pool Portfolios managed to approximate NAV share price

* Represents 180-day net yield

Source: COLOTRUST,CSAFE and CSIP Quarterly Reports and Respective Websites as of 6/30/21

Prime Portfolios/Term Product Series Dec 22 Portfolio June 30, 2021

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Section 5 | _{GASB 79}

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GASB 79

Background and Inception

•

Provides criteria for consistently measuring external investment pool holdings inclusive of the following:

•

Portfolio Maturity

•

Portfolio Quality

•

Portfolio Diversification

•

Portfolio Liquidity

•

Shadow Pricing

•

GASB 79 criteria seeks to reduce the risk that a pools investment portfolio measured on an amortized cost basis doesn’t deviate too much from fair (market) value.

Source: (GASB) Governmental Accounting Standards Board

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GASB 79

GASB 79 – A Focus on Liquidity Criteria

Portfolio Liquidity Requirements

• Illiquid Investments

• An investment that cannot be sold or disposed of in an ordinary course of operations at its amortized cost within five business days.

• Daily Liquid Assets

• A pool may not acquire any security or other investment other than a daily liquid asset if immediately after the acquisition the pool would have invested less than 10 percent of its total assets in daily liquid assets.

• Weekly Liquid Assets

• A pool may not acquire any security or other investment other than a weekly liquid asset if immediately after the acquisition the pool would have invested less than 30 percent of its total assets in weekly liquid assets.

Source: (GASB) Governmental Accounting Standards Board

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Section 6 | Reporting, Cyber Security, and Service Providers

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Reporting and Cyber Security Comparison

COLOTRUST CSAFE CSIP

Online Transaction and Reporting System x x x

Contributions, Withdrawals, and Transfers x x x

Multiple Accounts x x x

Transaction confirms, monthly statements,

historical data x x x

Dual approval for transactions x x

Omnibus x x

Arbitrage rebate compliance reporting for

bond proceeds x

Mobile phone access and format x x x

Secure Portal Access x x x

Multifactor Authentication x x x

Source: COLOTRUST,CSAFE and CSIP

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Operational Considerations

Transaction Cutoff Time - Same Day Wire 11:00 AM Mountain Time

11:00 AM

Mountain Time 12:00PM Mountain Time Transaction Cutoff Time - Next Day ACH 11:00 AM

Mountain Time

11:00 AM

Mountain Time 2:00PM Mountain Time Maximum Number of Transactions -

Liquidity Portfolios Unlimited Unlimited Unlimited

Maximum Number of Transactions- Enhanced Cash Portfolios

Unlimited; W/D available in 5 business days

3/month; 24- hour notice

Unlimited; Planned redemption at maturity;

early redemption penalties may apply

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Service Providers

Custodian UMB Bank, N.A. U.S. Bank U.S. Bank

Legal Counsel Butler Snow, LLP Berg Hill Greenlaf

Rushetti, LLP Kutak Rock

Auditor CliftonLarsonAllen,

LLP BKD, LLP Ernst & Young, LLC

Administration Public Trust

Advisors LLC LT Trust PFM Asset Management

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Q&A

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Disclosures

2021 Chandler Asset Management, Inc., An Independent Registered Investment Adviser.

The information herein is provided for informational purposes only and should not be construed as a recommendation of any security, sector allocation, strategy, investment product, nor an offer or solicitation for the purchase or sale of any financial instrument. References to sample securities, sector allocation, or investment products are for informational purposes and do not imply that managing portfolios to those securities or styles will achieve comparable returns.

Any forecasts, forward-looking statements and assumptions are inherently limited and should not be relied upon as an indicator of future results. Any opinions or views constitute judgments made by the author at the date of this presentation and may become outdated or superseded at any time without notice. Any statements concerning financial market trends are based on current market conditions, which will fluctuate.

Economic factors, market conditions and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. The data contained in this presentation is the property of those providers, which was obtained from sources believed to be reliable, but are subject to change at any time at the provider's discretion. Unless otherwise noted, Chandler is the source of data contained in this presentation. Fixed income investments are subject to interest, credit and market risk. Interest rate risk: the value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market in general could decline due to economic conditions, especially during periods of rising interest rates.