amy michaliszyn, ashbel williams

The Florida Local Government

Investment Pool

Best Practices for Today and Tomorrow

Ash WilliamsExecutive Director and CIOFlorida SBA

Amy MichaliszynSenior Vice PresidentFederated Securities Corp.

June 2, 2009 Institutional Use Only Federated Investment Counseling 09-31238

2

Florida Local GovernmentInvestment Pool

Professional Investment Management with Full

Transparency

• Comprehensive Credit Analysis• Effective Portfolio Construction

TechniquesRule 2a-7

S&P AAAm Rating

Investment Policy

• Investment Policy with Clarity of Objective

• Florida Statutes

SBA Governanceand Supervision

• Executive Director and CIO• IOG• Participant Local Government

Advisory Council• Board of Trustees• IAC

Stringent ComplianceModel in Real Time

• Internal Audit• External Audit• Protective Legislation

Stringent Protections at Multiple Levels

• Independent Custodian• Participant Services• Strong Outreach• Ease of Use

Institutional Use Only

3

Continuum of Recovery

LGIP suspends withdrawals

11/07 12/07 1/08 2/08 3/08 4/08 5/08 6/08 7/08 8/08 9/08 10/08 11/08 12/08 1/09 2/09 3/09 4/09 5/09

S&P AAAm Rating; Pool has liquidity restrictions

Federated Investors named Manager of LGIP & Fund B

Pools split into LGIP & Fund B

SB 2422 Legislation signed by

Charlie Crist

LGIP achieves full liquidity

New investment

strategy developed for

LGIP

SBA hires new Executive Director

PLGAC is formed

LGIP has positive net cash flows for five consecutive months

Governance model

addressed and improved


4

Name of Pool State Assets ($mm)TexPool TX 19,071

State of New Jersey Cash Management Fund NJ 18,800

Georgia Fund 1 GA 11,666

Utah Public Treasurers Investment Fund UT 10,702

Local Government Investment Pool TN 8,687

Mass Municipal Depository Trust-Cash Portfolio MA 8,067

Local Government Investment Pool WA 7,162

Local Government Surplus Funds Trust Fund FL 7,050

State Treasury Asset Reserve of Ohio OH 6,570

North Carolina Capital Management Trust: Cash Portfolio NC 6,399

TexSTAR Cash Reserve Fund TX 5,450

(Riverside) Treasurer’s Pooled Money Fund IL 5,336

The Illinois Funds – Money Market Fund IL 5,084

San Diego County Treasurer’s Pooled Money Fund CA 5,063

State Treasurer’s Short-Term Investment Fund CT 5,036

Local Gov’t Investment Pool OR 4,397

San Bernardino County Investment Pool CA 4,335

King County Investment Pool WA 4,100

Largest Money Market LGIPs*

Institutional Use Only *iMoneyNet as of June 2008

5



Transparency


TechniquesRule 2a-7

S&P AAAm Rating

Investment Policy










6

Investment Policy with Clarity of Objective

• The Local Government Surplus

Funds Trust Fund was created by

an Act of the Florida Legislature

effective October 1, 1977

(Chapter 218, Part IV, Florida

Statutes)

• The primary investment

objectives for the LGIP, in priority

order, are safety, liquidity and

competitive returns with

minimization of risks

Preservation of Capital

Liquidity

Yield


7



Transparency


TechniquesRule 2a-7

S&P AAAm Rating

Investment Policy










8

Money Market Investment Management Team

Legal CounselRule 2a-7 Expertise

Investment Analysis6 Experienced Money Market

Analysts

Trading4 Securities Desk Traders

4 Cash Desk Traders

Portfolio ManagementDeborah A. Cunningham, CFA

Paige M. WilhelmSusan R. Hill, CFAJoseph M. Natoli

FLORIDA LOCAL GOVERNMENT INVESTMENT POOL

Bank Credit and Corporate Credit Committees


9

Stringent Credit Review Process

• Each issuer must have at least two NRSRO ratings

• Quantitative and qualitative analysis

• Rating scale of “1” through “5” with credit ranked as “1” being most favorable

• Committees chaired by Senior Vice President of Investment Research

• Voting members include portfolio managers, senior analyst and dedicated team of money market investment analysts

FLORIDA INVESTED PORTFOLIO

FLORIDA INVESTED PORTFOLIO

Review issuers

and assign internal

Federated credit rating

Develop approved

issuer data-base

and monitor on

an ongoing

basis

Portfolio manageme

nt strategy

and constructi

on

Traders select

securities from

approved issuer

data- base

Bank Credit and Corporate

Credit committees

• Relative value analysis

• Compliance with Rule 2a-7 and other SBA of Florida provisions

• Average duration of 20-60 days

Key decision factors

• Financial analysis

• Industry conferences, publications

• Wall Street and other third party information

• Due diligence meetings


10

Federated Rating System

Federated

Internal

Rating

Equates to Maturity*

HIGHEST

LOWEST

1

2

3

4

5

A-1/P-1

“high” A-1/P-1

“low” A-1/P-1

“high” A-2/P-2

“low” A-2/P-2

397 days

397 days

180 days

90 days

90 days

*Exceptions can be made at analysts’ discretion


11

Rule 2a-7: Risk Control Provisions

• Every security acquired by a money fund must satisfy five

general risk control provisions, which are intended to limit

any deviation between a money fund’s amortized cost value

and its market value:

– The security must be U.S. dollar denominated

– The security must have a maturity of 397 days or less, and

acquisition of the security cannot cause the dollar weighted

average maturity of the money fund’s portfolio to exceed 90

days

– The security must present minimal credit risks

– The security must be an “eligible security”

– Acquisition of the security cannot violate the diversification

requirements of Rule 2a-7


12

Minimal Credit Risks

• The SEC indicates that “minimal credit risk” may not be based solely on

the rating assigned to the portfolio security by an NRSRO

• The SEC indicated that the minimal credit risk determination should be

“based upon an analysis of the issuer’s capacity to repay its short-term

debt”

– cash flow analysis

– assessment of the issuer’s ability to react to future events, including a review of

the issuer’s competitive position, cost structure and capital intensiveness

– assessment of the issuer’s liquidity, including bank lines of credit and

alternative sources of liquidity to support its commercial paper

– “Worst case scenario” evaluation of the issuer’s ability to repay its short-term

debt from cash sources or asset liquidations in the event that the issuer’s back-

up credit facilities are unavailable


13

Eligible Securities

Number of Ratings Ratings Received Tier Under Rule 2a-7

Two NRSROs: P-1/A-1

P-2/A-1

P-3/A-1

First Tier

Second Tier

Not Eligible

Three NRSROs: A-1/F-1/P-3

A-2/F-1/P-3

A-3/F-1/P-3

First Tier

Second Tier

Not Eligible

Four NRSROs: F-1/AMB-1/A-3/P-3

F-2/AMB-1/A-3/P-3

F-3/AMB-1/A-3/P-3

First Tier

Second Tier

Not Eligible

Five NRSROs: R-1/AMB-1/A-3/P-3/F-3

R-2/AMB-1/A-3/P-3/F-3

R-3/AMB-1/A-3/P-3/F-3

First Tier

Second Tier

Not Eligible


14

S&P AAAm Rating: Even More Stringent Controls

• 60 day weighted average maturity

• At least 50% of portfolio rated A-1+; the

remainder no less than A-1

• Weekly surveillance


15

LGIP Portfolio Construction

• Dollar-weighted average maturity not greater than 60 days

• Final maturity of an individual security not greater than 397

days

• 5% individual issuer limit

• 10% limit on illiquid securities/ “limited liquidity securities”

• At least 50% of the LGIP’s securities must be rated A1+;

remainder invested in A-1

• Weekly reporting to Standard & Poor’s

• No derivatives


16

Security Name Security Classification Cpn/Dis Maturity ParCurrent

YieldAmort Cost (2) Mkt Value (1)

Alpine Securitization Corp. CPABS4-2 COMMERCIAL PAPER - ABS- 4(2) 7/23/2009 50,000,000$ 0.48 49,963,056$ 49,955,510$

BNP Paribas SA CDYAN CERTIFICATE OF DEPOSIT - YANKEE 1.38 9/8/2009 30,000,000$ 1.40 30,000,000$ 30,083,910$

BNP Paribas SA CDYAN CERTIFICATE OF DEPOSIT - YANKEE 1.03 10/20/2009 150,000,000$ 1.04 150,000,000$ 150,319,230$

Banco Bilbao Vizcaya Argentaria SA CP4-2 COMMERCIAL PAPER - 4-2 11/16/2009 50,000,000$ 1.02 49,761,111$ 49,773,295$

Bank of America Corp. CP COMMERCIAL PAPER 6/2/2009 15,000,000$ 0.40 14,999,188$ 14,999,501$

Bank of America N.A., Jun 12, 2009 VARIABLE RATE BANK NOTE 0.38 6/12/2009 40,000,000$ 0.49 39,998,095$ 40,007,000$

Bank of America Triparty Repo Overnight Fixed REPO TRIPARTY OVERNIGHT FIXED 0.19 5/29/2009 396,000,000$ 0.19 396,000,000$ 396,000,000$

Bank of Tokyo-Mitsubishi Ltd. CDYAN CERTIFICATE OF DEPOSIT - YANKEE 0.95 7/28/2009 100,000,000$ 0.96 100,000,000$ 100,084,600$




Barclays Bank PLC CDYAN CERTIFICATE OF DEPOSIT - YANKEE 1.68 7/8/2009 75,000,000$ 1.60 75,008,468$ 75,104,760$

Barclays Bank PLC CDYAN CERTIFICATE OF DEPOSIT - YANKEE 1.33 7/13/2009 100,000,000$ 1.35 100,000,000$ 100,112,090$

Barclays Bank PLC, London CDYAN CERTIFICATE OF DEPOSIT - YANKEE 1.35 6/5/2009 100,000,000$ 1.37 100,000,000$ 100,023,310$

Barclays Bank PLC, London CDYAN CERTIFICATE OF DEPOSIT - YANKEE 0.95 7/23/2009 30,000,000$ 0.96 30,000,000$ 30,023,298$

Calyon North America, Inc. CP COMMERCIAL PAPER 6/10/2009 90,000,000$ 1.07 89,965,875$ 89,992,917$

Calyon, Paris CDYAN CERTIFICATE OF DEPOSIT - YANKEE 1.30 7/9/2009 100,000,000$ 1.32 100,000,000$ 100,110,580$

Calyon, Paris CDYAN CERTIFICATE OF DEPOSIT - YANKEE 0.45 9/1/2009 50,000,000$ 0.46 50,000,000$ 50,000,000$

Canadian Imperial Bank of Commerce CDYAN CERTIFICATE OF DEPOSIT - YANKEE 2.55 6/4/2009 300,000,000$ 2.59 300,000,000$ 300,131,040$

Danske Corp., Inc. CP COMMERCIAL PAPER 6/5/2009 200,000,000$ 1.02 199,955,556$ 199,989,280$



Dreyfus Government Cash Management Fund OVNMF OVERNIGHT MUTUAL FUND 0.34 5/29/2009 457,154,502$ 0.34 457,154,502$ 457,154,502$

FHLB Floating Rate Series 2 3/11/2010 FHLB FLOATING RATE NOTE 0.85 3/11/2010 40,000,000$ 0.87 39,995,902$ 40,168,000$

Fifth Third Bank, Cincinnati TDCAY TIME DEPOSIT - CAYMAN 0.16 5/29/2009 156,000,000$ 0.16 156,000,000$ 156,000,000$

General Electric Capital Corp., Aug 31, 2009 VARIABLE MEDIUM TERM NOTE 1.36 8/31/2009 25,000,000$ 5.58 24,737,222$ 24,961,700$

General Electric Capital Corp., Dec 15, 2009 VARIABLE MEDIUM TERM NOTE 1.44 12/15/2009 7,000,000$ 5.34 6,855,582$ 6,917,064$

General Electric Capital Services CP COMMERCIAL PAPER 11/10/2009 50,000,000$ 0.76 49,827,083$ 49,828,695$

LGIP Portfolio Holdings*

*As of May 28, 2009


17

LGIP Portfolio Holdings*Security Name Security Classification Cpn/Dis Maturity Par

Current Yield

Amort Cost (2) Mkt Value (1)

General Electric Capital Services CP COMMERCIAL PAPER 11/23/2009 100,000,000$ 0.66 99,676,806$ 99,608,690$

Landesbank Baden-Wuerttemberg CP COMMERCIAL PAPER 7/14/2009 100,000,000$ 1.17 99,849,861$ 99,938,250$

Lloyds Bank PLC, London CDYAN CERTIFICATE OF DEPOSIT - YANKEE 0.83 6/23/2009 50,000,000$ 0.83 50,000,361$ 50,019,125$

Lloyds Bank PLC, London CDYAN CERTIFICATE OF DEPOSIT - YANKEE 1.68 7/8/2009 50,000,000$ 1.68 50,001,129$ 50,069,840$

Mizuho Corporate Bank Ltd. CDYAN CERTIFICATE OF DEPOSIT - YANKEE 1.00 6/8/2009 200,000,000$ 1.01 200,000,000$ 200,042,740$

Mizuho Corporate Bank Ltd. CDYAN CERTIFICATE OF DEPOSIT - YANKEE 0.95 6/18/2009 90,000,000$ 0.96 90,000,000$ 90,034,092$

Morgan Stanley & Co., Inc. Triparty Repo Overnight Fixed REPO TRIPARTY OVERNIGHT FIXED 0.18 5/29/2009 1,196,000,000$ 0.18 1,196,000,000$ 1,196,000,000$

Mullenix-St. Charles Properties, L.P., Times Centre Apartments Project Series 2004, Jan 01, 2028VARIABLE RATE DEMAND NOTE 0.75 1/1/2028 13,500,000$ 0.75 13,500,000$ 13,500,000$

Newport, KY Industrial Building Revenue Bonds, Series 2007A-1 South Beach #1, LLC, Mar 01, 2032VARIABLE RATE DEMAND NOTE 3.55 3/1/2032 5,480,000$ 3.55 5,480,000$ 5,480,000$

Newport, KY Industrial Building Revenue Bonds, Series 2007A-2, Mar 01, 2032VARIABLE RATE DEMAND NOTE 3.30 3/1/2032 7,685,000$ 3.30 7,685,000$ 7,685,000$

Newport, KY Industrial Building Revenue Bonds, Series 2008 A-5 South Beach #1, LLC, Mar 31, 2032VARIABLE RATE DEMAND NOTE 3.30 3/31/2032 4,865,000$ 3.30 4,865,000$ 4,865,000$

Newport, KY Industrial Building Revenue Bonds, Series 2008A-3, Mar 01, 2032VARIABLE RATE DEMAND NOTE 3.30 3/1/2032 8,145,000$ 3.30 8,145,000$ 8,145,000$

Robert Louis Stevenson School, Series 2007, Aug 01, 2037 VARIABLE RATE DEMAND NOTE 3.75 8/1/2037 6,000,000$ 3.75 6,000,000$ 6,000,000$

Roche Holding AG, Feb 25, 2010 VARIABLE RATE TERM NOTE 1.66 2/25/2010 28,000,000$ 1.68 28,000,000$ 28,021,336$

Salisbury Receivables Company LLC CPABS4-2 COMMERCIAL PAPER - ABS- 4(2) 7/1/2009 64,000,000$ 0.48 63,971,591$ 63,966,029$

Societe Generale North America, Inc. CP COMMERCIAL PAPER 10/21/2009 175,000,000$ 1.07 174,254,792$ 174,342,805$

Societe Generale, Paris CDYAN CERTIFICATE OF DEPOSIT - YANKEE 1.00 6/8/2009 100,000,000$ 1.01 100,000,000$ 100,021,370$

Societe Generale, Paris TDCAY TIME DEPOSIT - CAYMAN 0.22 5/29/2009 30,000,000$ 0.22 30,000,000$ 30,000,000$

St. Andrew United Methodist Church, Series 2004, Jul 01, 2029 VARIABLE RATE DEMAND NOTE 0.75 7/1/2029 10,535,000$ 0.75 10,535,000$ 10,535,000$

State Street Bank and Trust Co. CD CERTIFICATE OF DEPOSIT 1.30 7/9/2009 100,000,000$ 1.32 100,000,000$ 100,116,530$



Svenska Handelsbanken, Stockholm CDYAN CERTIFICATE OF DEPOSIT - YANKEE 1.01 6/12/2009 200,000,000$ 1.01 200,000,831$ 200,059,100$

Toronto Dominion Bank CDYAN CERTIFICATE OF DEPOSIT - YANKEE 2.50 6/2/2009 300,000,000$ 2.54 300,000,000$ 300,097,830$

Yorktown Capital LLC CPABS4-2 COMMERCIAL PAPER - ABS- 4(2) 6/5/2009 99,577,000$ 0.71 99,561,510$ 99,563,278$

3,138,787,000$ 3,137,526,881$ 3,138,400,000$

*As of May 28, 2009

6,044,941,502$ 6,042,623,833$ 6,045,124,783$


18

Fund B Holdings*

Par Value Market Value% Market

Value

Florida West Funding

LLC$273,481,243

$138,606,64

243.4%

Axon Financial Funding

LLC162,472,107 59,206,451 18.5%

Issuer Entity LLC

(Ottimo) 152,109,470 37,441,515 11.7%

Florida East Funding LLC 129,848,104 82,770,431 25.9%

Dreyfus Gov’t Cash

Mgmt Fund 1,616,591 1,616,591 0.5%

TOTAL $719,527,515

$319,641,62

9

100.0%Par Value ― Market Value ≠ Expected Principal Loss*As of May 28, 2009


19

Fund B: Security Description

• Axon and Issuer Entity LLC (Ottimo)

– Each one SIV

– Collateralized by many other bonds

• Florida East and Florida West

– Asset-backed securities held by multiple clients of the SBA

– Collateral seized from KKR Atlantic/Pacific default

– East = 33 bonds

– West = 43 bonds

• Dreyfus

– Money Fund

– Temporary repository for interest and principal payments


20

Florida

East

Florida

WestAxon

Issuer

Entity

LLC

(Ottimo)

Residential Mortgages 100.0 100.0 46.1 100.0

Commercial Mortgages 0.0 0.0 20.3 0.0

Loans by Banks 0.0 0.0 13.8 0.0

Investment Grade Corporate Bonds 0.0 0.0 5.1 0.0

High Yield Corporate Bonds 0.0 0.0 0.9 0.0

Trust Preferred Securities 0.0 0.0 0.4 0.0

Aircraft Leases 0.0 0.0 2.7 0.0

Equipment Leases 0.0 0.0 0.2 0.0

Small Business Loans 0.0 0.0 6.4 0.0

Student Loans 0.0 0.0 0.8 0.0

Other 0.0 0.0 3.3 0.0

TOTAL 100.0% 100.0% 100.0% 100.0%

Fund B: Security Composition by Sector (%)

Institutional Use Only *As of May 28, 2009

21

Fund B: Issues Impacting Recovery ValuesUncertainty regarding:

• Potential expansion of TALF to include residential mortgage-backed bonds

• Further extent of home price declines

• Success of government and private initiatives to mitigate foreclosure problem

(loan modifications)

• Where will unemployment rate peak?

• Impact of potential rating agency downgrades of CMBS on CMBS CDO market

• Can AMBAC and other monoline issuers fulfill obligation to make up any

principal losses?

• Loss modeling assumptions

– Prepayment speeds

– Severities

– Roll rates


22



Transparency


TechniquesRule 2a-7

S&P AAAm Rating

Investment Policy










23

TRADINGPORTFOLIO MANAGEMENT

INVESTMENTANALYSIS

Portfolio Compliance in Real Time

LEGAL COUNSEL CUSTODIANBANK CREDIT AND CORPORATE

CREDIT COMMITTEES

FedPorts

• Average Maturities

• Diversification Rules

• Investment Policy

• Portfolio Parameters

• Rating Agency Compliance

• Investment Oversight Group


24

Compliance Checklist - LGIP


25

Compliance Checklist – Fund B


26

Further Protection Through Legislation; SB 2422

• Highlights– Clarified investment objective– Annual best practice certification– Participant advisory council– Mandatory enrollment materials– Written investment policy– Ethics commitment– Internal controls– Comprehensive frequent reporting– Annual financial audit– Best Practices – gain sharing and penalties


27

99.50%

99.75%

100.00%

100.25%

100.50%

June

August

October

Decem

ber

Febru

ary

AprilJune

August

October

Decem

ber

Febru

ary

AprilJune

Defined Course of Action, Managing Material Events that Impact Liquidity

LGIP Target $1.00 NAV

Institutional Use Only This chart is for illustrative purposes only and represents a hypothetical target NAV.

28



Transparency


TechniquesRule 2a-7

S&P AAAm Rating




Investment Policy







29

BOARD OF TRUSTEES

GovernorChief Financial Officer

Attorney General

AUDIT COMMITTEE INVESTMENT ADVISORY COUNCIL

PARTICIPANT LGIP ADVISORY COUNCIL

Executive Director & Chief Investment

Officer

Supervision and Oversight

Chief of Internal Audit Deputy Executive Director

Inspector General Director of Communications

General Counsel Senior Investment

Policy Officer

Chief Operating Officer

Senior Officer Defined

Contribution Programs

Senior Officer Corporate

Governance

Chief Operating Officer of Florida

Hurricane Catastrophe

Fund

*Executive Director of Florida Prepaid College

Programs *Director of Bond Finance

*Reports to other BoardsInstitutional Use Only

30

Participant Local Government Advisory Council

• MaryEllen Elia, Chair

• Patsy Heffner, Vice Chair

• Roger B. Wishner

• Karen Nicolai

• John Mark Peterson

• Daniel Wolfson


31

Appendix


32

• $23.4 billion in Equity Assets

• $25.7 billion in Fixed Income Assets

• $360.1 billion in Money Market Assets

• 55 Money Market Portfolios

33 Taxable

16 Tax-Free State-Specific*

6 Tax-Free National**

Federated Liquidity Management

More Than $409 Billion in Total Assets Under Management (as of 3/31/09)

• Manage public sector money in all 50 states

• Service 3,500 public entities directly

• Manage nation’s largest money market LGIP relationship

* Income may be subject to the federal alternative minimum tax.

** Income may be subject to the federal alternative minimum tax and state and local taxes.


33

Florida East/Florida West

PROS

• Primarily 2004-2006 loans

• Overcollateralization

• AMBAC guarantee on 9 bonds

• Declining interest rates lower

rate shock for option ARM

borrowers

CONS

• Alt-A borrowers

• Loan concentration in CA and FL

• Weakening economy and rising

unemployment rate

• Some negative amortization

loans

• 56 bonds held indirectly via 2 notes received in KKR restructuring of the original KKR Atlantic and KKR Pacific holdings

• 100% residential mortgage-backed bonds


34

Issuer Entity LLC (Ottimo)

PROS

• Declining interest rates lower

rate shock for ARM borrowers

• Current pay, senior bonds

CONS

• Alt-A borrowers

• Primarily 2006-2007 Loans

• Weakening economy and rising

unemployment rate

• Loan concentration in CA and FL

• 1 security collateralized by 54 bonds

• 100% of collateral residential mortgage-backed bonds


35

Axon

PROS

• Most direct commercial

mortgage-backed bonds very

well protected from losses (9.6%)

• Small Business Administration

Loans/ABS liquidity supported by

government TALF program

• Capital notes provide 10.5%

support to senior notes

CONS

• Very illiquid CDOs (31.3%)

• Subprime mortgage exposure

(10.3%)

• CMBS CDOs at risk for event of

default if underlying CMBS

downgraded

• 1 security collateralized by 247 bonds

• Complex structure

• Diverse range of bond types


36

Disclosure

Standard & Poor’s: AAAm rating by Standard & Poor’s is obtained after S&P evaluates a number of factors, including credit quality, market price exposure and management. This rating, however, is subject to change, and does not remove market risk.An investment in the pool is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the issuer seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in the security.Portfolio holdings are shown as of the date indicated. Since market conditions fluctuate suddenly and frequently, the portfolio holdings may change and this list is not indicative of future portfolio composition. These portfolio holdings are not intended to be and do not constitute recommendations that others buy, sell, or hold any of the securities listed.Past performance is no guarantee of future results.


amy michaliszyn, ashbel williams

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