Office of the Washington State Treasurer Separately Managed Portfolios

Background:

The Office of the State Treasurer has the authority to enter into interagency agreements with public entities to manage investments.  In early 2018 OST entered into its first agreement with Pierce County to manage a portfolio of intermediate term investment balances, and legislation passed in 2019 allowed OST to extend this option to other entities.  Currently OST manages local government portfolios totaling over $800 million in the Separately Managed Account (SMA) program.

How is the SMA program different from the LGIP?

• SMA is intended for investment of funds that are not required for short term cash needs, so investments are less liquid and have longer maturities than the LGIP.
  • Each SMA portfolio is managed according to the same guidelines as the OST’s Core portfolio (where longer term balances of the state are invested).
  • SMA portfolios have a benchmark duration around 2.2 years.
  • SMA portfolios invest in securities out to 5 year maturities.
• LGIP is a pool, while SMA investors have their own holdings.
• The SMA program has a minimum portfolio size of $15 million.
• SMA portfolios are not intended for regular withdrawals and deposits.
• Over a market cycle, OST’s Core portfolio strategy has historically generated a higher return than the LGIP.

How does it work?

• All SMA portfolios are governed by the same investment policy and benchmark.
• Each portfolio has its own holdings. Portfolio performance is tracked by OST, with monthly reports provided to each participant.
• OST holds all securities at our custodian (currently Northern Trust) and makes day to day investment decisions.
• Funds are not commingled with state holdings.
• OST does security-level accounting, allowing investors to account for the portfolio as a single investment.
• Service charges are deducted from earnings each month and vary from 2.5 to 4 bp according to portfolio size. OST’s objective is to keep charges low while covering costs and generating a modest working capital reserve.

Do all SMA portfolios have identical holdings and returns?

OST builds each new portfolio by purchasing securities over a number of months beginning when the portfolio is established.  In cases where new portfolios include a transfer of preexisting holdings, portfolios will be gradually adjusted as existing securities mature or are sold.  Consequently, the returns for any one portfolio do not exactly match those of other accounts.  Generally, however, the holdings of SMA accounts and those of OST’s core portfolio contain a very similar mix of securities and maturities and reflect the same market strategy.

Will I have electronic access to my account?

SMA accounts are not set up for electronic access, but portfolio information is available on request.

How do deposits and withdrawals work?

Funds are initially deposited into the SMA account on an agreed date after the interagency agreement is signed.  Securities may also be transferred into the account in lieu of or in addition to a cash deposit.  Additional future deposits are as agreed between the investor and OST.

Withdrawals from the SMA portfolios affect the portfolio managers’ ability to manage to a duration target.  Ideally they should be infrequent and communicated well in advance, to reduce the risk to the investor of a loss and/or diminished future investment earnings for the remaining balance.

Deposits and withdrawals are carried out by transferring funds in and out of the investor’s LGIP account.

SMA Interagency Agreement and Exhibits

Following are the standardized set of SMA agreements signed by OST and new SMA participants when an account is created:

• SMA Interagency Agreement
• SMA Investment Policy
• Exhibit B
• Exhibit C
• Exhibit D

Contact Information

Primary Contact:
Amanda Hutson, Portfolio Manager
(360) 333-5192
amanda.hutson@tre.wa.gov

Office of the State Treasurer
PO Box  40200
Olympia, WA  98504-0200