Separately Managed Accounts

Separately Managed Portfolios

Longer-term investment for locals

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 $200 million portfolio of core investment balances. Legislation passed in 2019 allows OST to extend this option to other entities, and OST expects to expand the Separately Managed Account (SMA) program over time.

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 portfolio invests in securities out to 5 year maturities.
- SMA portfolios have a duration around 2.1 years.

LGIP is a pool, while SMA investors have their own holdings.
SMA portfolios have limits on withdrawals and deposits.
Over a market cycle, SMA portfolios can be expected to generate higher returns.

How does it work?

All SMA portfolios have the same investment policy and benchmark.
Each portfolio has separate holdings and performance information that are tracked by OST, with monthly reports provided to each participant.
OST holds all securities with 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 will vary according to portfolio size. OST’s objective is to keep charges low while covering costs and generating a modest working capital reserve.

Will all SMA portfolios have identical earnings and holdings?

OST will structure each portfolio by purchasing securities over a number of months at the time that the portfolio is set up. For portfolios that are set up via transfer of securities, portfolios will be gradually adjusted as existing securities mature or are sold. Consequently, the returns for any one portfolio will not exactly match those of other accounts. Generally, however, the holdings of SMA accounts and those of OST’s core portfolio will contain a very similar mix of securities and maturities and will reflect the same market strategy.

Will I have electronic access to my account?

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

How do deposits and withdrawals work?

The SMA program is intended for longer term core funds that are not required to meet cash flow needs; it is not designed with regular withdrawals in mind. Funds are initially deposited into the account once an agreement is signed. Alternatively, if agreed, securities may be transferred into the account in lieu of an initial deposit. Any additional deposits are as agreed between the investor and OST.

Withdrawals from the portfolio 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 generally carried out by transferring funds in and out of the investor’s LGIP account.