Many states allow governing entities to pool assets into a fund that operates similarly to a mutual fund. By combining investment resources, Local Government Investment Pools (LGIPs) can enjoy the benefits of economies of scale, portfolio management, diversification, and liquidity. Based on years of experience in mutual fund accounting methodology, Nottingham developed a system that enables LGIPs to value and track the many accounts, sub-accounts, and sub-accounts of sub-accounts associated with this type of investment structure.
Since 1999, Nottingham has been providing a flexible, customized accounting system to a large state treasury. The Treasurer of this jurisdiction worked with their legislature to modernize the investment policies of state government and government-affiliated entities. Moving quickly to outsource investment management of significant blocks of assets, investments ranged from retirement plan assets to overnight cash for over 140 state agencies. With access to the best investment expertise available, the goal was set to offer the same investment expertise to smaller blocks of assets within all other state-governed or state-affiliated entities.
The best mechanism for offering these investment options was to pool all underlying accounts together, creating, in essence, “mutual fund” type pools, providing efficiency for the advisors and maximum leverage when negotiating fees with vendors relative to the investment and cash-management process. Pooling is ideal for these economies of scale. The 140 state agencies and several hundred affiliated entities, however, feared “loss of control.” The chief financial officer of each underlying entity remains responsible for the management and outcome of those assets, even though the actual investment management is delegated to the Treasurer’s office.
Nottingham developed a thorough, customized investment accounting solution that adapted to the specific needs of the Treasury. Some of the largest investment custodians in the United States are domiciled in this large eastern seaboard state. Yet no institution was able to provide the complete and flexible accounting solution, that integrates with appropriations codes and existing system data, like the system built by Nottingham.
For over a decade, Nottingham has continued to tailor and revamp the system, constantly updating the operational system to fulfill the identified needs of the Treasurer’s office. Nottingham’s solution for Local Government Investment Pools includes secure online access, instant database and reporting functions, plus built-in controls enabling Treasurer oversight.
Nottingham designed a unitized accounting system that:
- Interfaces with multiple investment advisors and custodians
- Provides daily NAV for several investment pools consisting of multiple managers in each pool
- Calculates account balances, gains, and losses for hundreds of agencies and affiliated entities
- Provides internal control to SAS 70 levels
- Includes a shareholder support platform to service trading and reporting functions
- Provides reliable, secure online access and calculates advanced cash forecasting reports
The improved accounting system:
- Enables diversified asset allocation. The pool can support short term, fixed, interest-bearing or long-term investment strategies.
- Generates more revenue. Both the Commonwealth and its agencies have experienced higher investment returns.
- Saves time. The customized web-based platform and responsive shareholder service from Nottingham provide:
- Detailed custom reports available through a secure web portal
- Reliable, fully-staffed shareholder services can process special requests in a matter of hours instead of several weeks
- Technology that cuts down on analysis time to calculate net investable cash so that investment managers can focus on trading
- Offers flexibility. The Treasury can work with any number of investment managers and custodians. Since the pool operates under a single NAV, the structure can be easily changed without affecting shareholder agencies.
- Supports compliance and controls. Treasurer has instant access to all managers’ performance and holdings. Automatic scanning of holdings for restricted securities prompt notifications to the Treasurer so situation can be addressed immediately.
- Employs strict security measures. A customized level of security provides data encryption and restricted user access to servers.
- Allows for continuous solution development. We work tirelessly with the Treasury to enhance their systems continually. Most recently, we addressed concerns regarding managing liquidity. This new solution provides longer-term cash forecasts and deeper detail on upcoming transactions, allowing the Treasury to manage liquidity and maximize investments more efficiently.