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PUD Program Frequently Asked Questions
What is a Public Unit Deposit?
Public Unit Deposits (PUD) are demand or time deposits controlled by a public unit such as a municipality or political subdivision. Examples of political subdivisions: School districts; bridge and port authorities; sanitation, utility and fire districts; and any municipal subdivision or principal department that is authorized to perform some delegated function of government and exercises exclusive use and control of funds.
Why consider Public Unit Deposits?
PUDs offer many of the same behavioral characteristics of traditional core deposits. Public depositors are most concerned with safety and soundness and maintaining liquidity of excess funds invested while maximizing yield within the above constraints is a secondary consideration.
What is a Local Government Investment Pool?
With the emergence of money market funds, public entities sought the benefit of professional money management to help optimize returns while balancing asset/liability timing differences. In many states, the treasurer or an authorized governing board oversees a Local Government Investment Pool (LGIP) that manages money on behalf of political subdivisions.
What are the advantages of accessing an LGIP?
Public Unit Deposits, via an LGIP, offer the following advantages:
Convenient, cost-effective access to a previously untapped source of public unit deposits that serve as a compliment to FHLB Des Moines advances
LGIP deposits are fixed maturities and not transactional resulting in a more stable, less volatile and less rate sensitive source of funds
LGIP deposits eliminate the seasonal fluctuations typically found in other PUDs
Direct placement allows banks to avoid DTC clearing for certificates of deposit
Diversifies a financial institution’s mix of funding and liquidity
LGIP telephonic access and the FHLB Des Moines Money Desk make it convenient and easy to access funds
Using FHLB Des Moines Letters of Credit in lieu of securities as collateral provides flexibility in the management of a member bank’s investment portfolio
Is a deposit from an LGIP considered “Core” or “Brokered?"
FHLB Des Moines does not make any representation as to the classification of specific types of funding employed by its members. Members should direct questions such as these to their primary regulator or independent advisors.
Are there any collateral requirements when accessing PUDs?
Most states and municipalities require financial institutions to pledge securities as collateral to secure public deposit balances in excess of the $250,000 FDIC insurance limit. Municipalities and political subdivisions typically demand as collateral high-quality government securities such as U.S. Treasuries, federal agencies or municipal bonds. The administrative burden associated with managing collateral pledged against the uninsured portion of public deposits can be costly.
Another way to collateralize PUDs is by using FHLB Des Moines Letters of Credit. When accessing public deposits through the FHLB Des Moines Public Unit Deposit program the only method to collateralize the LGIP deposit is via LOC.
Why use an FHLB Des Moines Letter of Credit?
Using an FHLB Des Moines Letter of Credit in lieu of securities offers several advantages over traditional methods of collateralizing public deposits. An FHLB Des Moines LOC enables a financial institution to leverage less-liquid collateral that is pledged to FHLB Des Moines. It also eliminates the administrative burden associated with substituting collateral, calculating mark-to-market value and adjusting collateral levels as market values fluctuate.
What LGIPs are available in the FHLB Des Moines district?
Currently, there are two Investment Advisors participating in the FHLB Des Moines PUD program. Efforts are ongoing to locate LGIPs that will serve FHLB Des Moines members in other states.
Prudent Man Advisors, Inc. Affiliated LGIPs
Illinois LGIPs - Available to all member banks
Request Deposit/CD - PMA at 630.657.6560
Minnesota LGIPs - Available to all member banks and credit unions
Request Deposit/CD - PMA at 630.657.6560
Who is Prudent Man Advisors?
Prudent Man Advisors, Inc. is an SEC registered investment adviser which provides investment advisory services to local government investment pools and separate accounts. Prudent Man Advisors and its affiliates, PMA Financial Network, Inc., and PMA Securities, Inc. (collectively “PMA”), currently serve over 1,450 school districts and other public entities in nine states. PMA Funding, which provides funding solutions to financial institutions, is a service of PMA Financial Network, Inc. and PMA Securities, Inc. The PMA companies have built a reputation as a reliable, professional financial organization offering unique products and services for public sector clients. PMA prides itself on employing “best practices” in its delivery systems. Public entities turn to PMA as a trusted partner and integral component of their long-term financial success. PMA believes that a well-defined and prudently disciplined investment strategy is a public entity’s best approach. In fact, the concept of prudence is embedded in PMA’s core philosophy and is reflected in its name, an acronym for “Prudent Man Analysis.” In addition to prudence, PMA follows the guiding principle of “safety first, liquidity second, yield third.”
Public entities/LGIPs which PMA serve share one common investment objective: safety of principal. Therefore, maintaining a high level of credit quality is central to PMA’s investment recommendations. PMA’s strategy is to create sound portfolios with investments that have low risk characteristics. For credit requirements, please click on the following hyperlink (PDF).
Prudent Man Advisor Affiliated LGIPs
Prudent Man Advisor affiliated LGIPs are typically established as a common law trust organized pursuant to the specific state statute. They are created to provide professional investment services to school districts, Community College Districts, Educational entities, and municipalities to enhance investment opportunities at a reasonable cost. Most LGIPs offer their participants multiple professionally managed portfolios which offer competitive money market rates. It is common for LGIPs to be sponsored by school and municipal associations. The associations recognize the LGIP model as being powerfully and uniquely suited to the needs of public entities – providing the ideal mix of safety, liquidity, and yield. LGIPs are typically a joint powers entity to permit participants to pool their investment funds to seek the highest possible investment yield, while maintaining liquidity and preserving capital. Management of the affairs of a LGIP is the responsibility of the Board elected by the Participants of the LGIP. The Board oversees the actions of the Investment Advisor, the Administrator, the Custodian and the Distributor and decides on general policies. The Board is comprised of representatives of various Participants of the LGIP as well as representatives of the participating associations, if applicable.
For additional information on specific participating LGIPs, contact Prudent Man Advisors at 630.657.6560.
PFM Affiliated LGIPs
Request Deposit/CD - PFM Group at 717.234.3006
Request Deposit/CD - PFM Group at 717.234.3006
Who is PFM?
PFM Asset Management LLC and Public Financial Management, Inc., collectively the PFM Group, are leading providers of independent financial and investment advisory services. The PFM Group, headquartered in Philadelphia, began operations in 1975 and currently supports 33 offices in 22 states with more than 400 employees.
The PFM Group has provided advisory services to public sector and not-for-profit institutions throughout the United States for over 30 years. PFM Asset Management helped pioneer developing statewide investment pools. The first grass roots LGIP was established in Pennsylvania in 1981 and is still managed by PFM Asset Management. PFM Asset Management provides investment advisory and administrative services to 14 AAAm rated pooled investment programs and one registered investment company with total assets of over $20.2 billion from 5,500 participants in 16,000 accounts as of March 31, 2010.
Who Is MOSIP?
The Missouri Securities Investment Program (PDF) (“MOSIP” or “the Program”) was established by the Missouri School Boards Association on October 3, 1991, as an instrumentality of Missouri Public School Districts, municipalities and other political subdivisions pursuant to an intergovernmental cooperation agreement executed under the laws of the State of Missouri. It was created to provide professional investment services to Missouri school districts, municipalities and other subdivisions at a reasonable cost.
The Missouri Securities Investment Program (“MOSIP” or the “Program”) is an instrumentality of Missouri public school districts, municipalities and other political subdivisions established under the authority of Article VI, Section 16 of the Constitution of Missouri and Sections 70.210 to 70.320, Revised Statutes of Missouri, as amended (“RSMo”).
MOSIP is a cooperative investment service established by an Amended and Restated Intergovernmental Cooperation Agreement dated as of April 22, 1997, as amended (the “Intergovernmental Agreement”), to provide for the investment of surplus funds of school districts, municipalities and other eligible political subdivisions. Public school districts are authorized under Section 165.051 RSMo to invest their surplus funds in certain financial instruments. The cooperative investment service provided by MOSIP is “within the scope of the powers of such municipality or political subdivision” within the meaning of Section 70.220. Section 70.310 provides that money received under the contract or cooperative action may be deposited into a common “fund or funds and disbursed in accordance with the provisions of such contract or cooperative action.”
Management of the affairs of the Program is the responsibility of the Board of Directors elected by those signatories to the Intergovernmental Agreement which invest through the Program (the “Participants”). The Board of Directors is comprised of representatives of various Participants of the Fund, as well as representatives of the Missouri School Boards’ Association (“MSBA”), Missouri Association of School Administrators (“MASA”), and Missouri Association of School Board Officials (“MOASBO”) (collectively the “Sponsors”).
The Board of Directors has engaged PFM Asset Management LLC (“PFMAM”) as administrator (the “Administrator”), and as investment adviser (the “Investment Adviser”) and PFM Fund Distributors, Inc. (“PFMFD” or the “Marketing Agent”) as the Marketing Agent for the Program.
Who is MSDLAF+?
The Minnesota School District Liquid Asset Fund Plus (PDF) (“MSDLAF” or “the Fund”) was established on November 29, 1984 as a common law trust organized pursuant to the Minnesota Joint Powers Act. It was created to provide professional investment services to Minnesota school districts at a reasonable cost. MSDLAF offers its participants multiple professionally managed portfolios which offer competitive money market rates.
The Fund’s activities are directed by a Board of Trustees, all of whom are representatives of Minnesota school districts. The MSDLAF Board of Trustees contracts for services with professional service providers who are industry leaders in their fields. As a result, the Fund is accountable solely to its Participants.
The Minnesota School District Liquid Asset Fund Plus (the “Fund”) is a joint powers entity in the form of a common law trust organized and existing under the laws of the State of Minnesota in accordance with the provisions of the Minnesota Joint Powers Act (Minnesota Statutes, Section 471.59), as amended (the “Joint Powers Act”) to permit Minnesota School Districts to pool their investment funds to seek the highest possible investment yield, while maintaining liquidity and preserving capital. The Fund was established on November 29, 1984, by the adoption of a Declaration of Trust by three Minnesota School Districts as the initial Participants. The Declaration of Trust was amended on October 7, 1986, amended and restated on October 21, 1991, and further amended on October 23, 2006.
Management of the affairs of the Fund is the responsibility of the Board of Trustees elected by the Participants of the Fund. The Board of Trustees has engaged PFM Asset Management LLC (“PFM”) as administrator (the “Administrator”) and investment adviser (the “Adviser”) for the Fund.