Investments

The Arizona State Treasurer’s Office manages a balance of more than $12 billion in fixed income and equity investments in 25 different investment pools, each with unique statutory investment parameters.  These dollars are comprised of three major sources:

  1. State Taxes, Fees, and other revenues
  2. Local Government Investment Deposits (LGIP)
  3. State Land Permanent Endowment Funds

The State Treasurer determines the amount of state funds not needed for current operating expenses and invests those funds in the following:

Interest-bearing Time Deposits in Arizona Banks
U.S. Treasury & Federal Agency Securities
Repurchase Agreements
Bankers’ Acceptances
Top-rated Commercial Paper
Corporate Notes
Asset-backed Securities
Mortgage-backed Pass-through Securities
Collateralized Mortgage Obligations
Equities (Stocks)

 

Overall, the Treasurer manages a fixed income portfolio of approximately $10.2 billion and an equity portfolio of approximately $2.8 billion. The portfolio includes approximately 2,850 different issues. The securities range from repurchase agreements and commercial paper to collateralized mortgage obligations and corporate bonds. Maturities range from overnight to thirty years. These securities are spread across approximately 1,250 accounts that comprise the 25 pools under active investment management.

Safety – liquidity – yield

Safety is the Treasurer’s number one priority in the investment of the public’s funds. Staff investment specialists monitor major investment markets and work to maximize the state’s return on investments without compromising safety while maintaining liquidity to meet cash flows.

endowment

Among these investments are 13 Permanent Endowment Funds with a fair value balance of $4.59 billion. These funds contain proceeds from sales of land granted to the State of Arizona at statehood by the federal government.

The largest Endowment fund is the Permanent Common School Fund with a fair value balance of nearly $4.275 billion.  The proceeds from this fund are distributed to classrooms across Arizona.  In 1998, under Article 10, Section 7 of the Arizona Constitution, the Endowment’s distribution formula was created based on the 5-year average of annual returns after adjusting for inflation. This formula resulted in K-12 public education receiving $0 from the fund in FY 2010. After the Treasurer’s Office completed the first-ever asset allocation study in 2011, voters supported and passed a simplified formula to be 2.5 percent of the average 5-year market value of the fund with the passage of Prop 118 in November 2012.

In FY 2015 a $81.7 million distribution will be made to the 13 beneficiaries of the Endowment, with  the Permanent Common School Fund receiving nearly $76 million. This represents a $8.7 million, or 11.91%, increase in total distributions from the previous fiscal year, and a $8.2 million, or 12.1%, increase year-over-year for K-12 students.

local governments

Local Governments may also deposit money with the Treasurer for investment. These funds are invested and pooled in the Local Government Investment Pools (LGIP). These deposits are voluntary, but provide many benefits to the local governments. The Treasurer’s office pools LGIP investments with other funds to provide greater liquidity and greater yield than possible on their own, and the Treasurer’s Office provides this service at a much lower cost than other options.