Focus on the right strategy

Investing can look a lot different for public entities than it does for the average organization. First, several federal, state and local laws control which investments can be made. Second, many municipalities develop their own investment policy statements, in large part so that they can abide by these laws. As a result, municipal financial leaders often take a more conservative and deliberate approach to comply with regulations.

Liquidity management is also important for public sector financial leaders, meaning they want plenty of cash on hand as well as investments with maturities of twelve months or less. One key strategy is to ladder investments, which means selecting assets with short-term, intermediate and long-term maturities. Short-term returns can help boost a municipality’s cash flow while also providing funds to reinvest in the longer-term assets. Additionally, a percentage of funds can be set aside as reserves, which provides added stability over time.

Knowing which type of assets are the most appropriate is equally important. Treasury bonds are a good example, as they are backed by the full faith and credit of the U.S. government, which makes them very low risk. This type of asset is geared toward a predictable income stream, stability, liquidity and capital preservation. Other types of investments like certificates of deposit (CDs), government-backed agency bonds and municipal bonds can also provide steady and reliable returns.

Experienced partners matter

Given the complexities of a public entity investment strategy, finding a partner who is experienced in this space is critical. Look for someone with a firm grasp of applicable laws and a good understanding of your municipality’s investment policy, as well as a willingness to act as an extension of your team and manage your portfolio on a day-to-day basis. Partners should be able to manage risk through diversification, oversight, and a focus on quality through ongoing credit monitoring and review of holdings.

To juggle both short- and long-term investment goals, be sure to regularly review your banking relationship and the account structure you have in place. Depending on different market and rate environments, there could be opportunities to maximize interest income or decrease the amount of fees paid for treasury management solutions tied to your operating account.

Additionally, it’s important that your financial partner checks in regularly. Check-ins should include portfolio performance reviews, discussion around current and future cash flow needs, strategy adjustments and market outlooks.

Even with the best strategy in place, municipal investing is challenging. Ultimately, your best bet is to build a well-diversified portfolio with a mix of asset classes and maturities that are allowable under law. An experienced financial partner who puts your interests first and understands your goals can help you adapt to changing market conditions and manage your investments accordingly.