Local government investment pools (LGIPs) are one of the most common investment products utilized by state and local governments nationwide. Because public funds must be protected while remaining liquid, LGIPs typically invest in low-risk, short-term instruments. One of the most common investments utilized in LGIPs are repurchase agreements, or “repo(s).” Repos are widely used in money market funds and LGIPs because they support the key investment objectives: safety, liquidity, and yield.
Additionally, repos allow investment managers to maintain flexibility in managing the pool’s cash flows. Because local government participants may deposit or withdraw funds frequently, LGIP managers must ensure that the portfolio contains enough short-term investments to meet these needs. For LGIPs that follow the rules of GASB 79, 10% of the assets must have maturity of one day and 30% must mature in seven days or less. As a result, repos serve as a core investment to meet short-term liquidity needs.
