External Investment Pools

WHAT ARE EXTERNAL INVESTMENT POOLS?

For governments, external investment pools function much like money market funds do in the private sector. Government investment funds pool the resources of participating governments and invest in short-term, high-quality securities permitted under state law.







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WHY DO GOVERNMENTS JOIN INTO AN EXTERNAL INVESTMENT POOLS?

By pooling their cash together, participating governments benefit in a variety of ways, including from economies of scale and professional fund management.


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WHY DID THE GASB ISSUE GUIDANCE ON EXTERNAL INVESTMENT POOLS?

To qualify for amortized cost reporting under accounting standards in place prior to Statement 79, an investment pool had to meet the basic requirements of Rule 2a7, except for the requirement to file with the SEC—referred to a being “2a7-like.” However, under the SEC’s new rules, which become effective in 2016, many government pools are not expected to qualify for amortized cost reporting and would have to report their investments at fair value. This would reflect a major change from current practice and would have a significant impact on local governments.

GASB Statement 79 establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes.


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WHAT DOES THE GUIDANCE PROVIDE?

Statement 79 addresses how certain state and local government external investment pools and participants in external investment pools may measure and report their investments in response to changes contained in a U.S. Securities and Exchange Commission rule due to take effect in 2016.

The Statement includes criteria to qualify for making the election to measure investments at amortized cost for financial reporting purposes. These criteria address:
  • How the external investment pool transacts with participants
  • Requirements for portfolio maturity, quality, diversification, and liquidity, and
  • Calculation and requirements of a shadow price.
Statement 79 also establishes additional note disclosures for both qualifying external investment pools and their participants.


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WHAT ARE THE NEXT STEPS?

Statement 79 is available for download at no charge on the GASB website. Printed copies of the Statement are also available for purchase in the GASB Store.

The requirements of the Statement are effective for financial statements for periods beginning after December 15, 2015 with earlier application encouraged.

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