Wyoming could switch its investment strategy

CHEYENNE – While Wyoming has benefited recently from massive gains from the financial market, the state may shift its investment strategy to a more conservative approach for the state’s checking account.

The potential change would be to Wyoming’s State Agency Pool, also known as SAP, which is a combination of money from more than 400 state agency accounts pooled for investment. Investment income from the pooled resources are distributed back to a specific state agency or into the state’s general fund.

Instead of looking for higher investment returns from the SAP, Wyoming would focus on a more secure investment strategy that could eliminate potential losses in the future. Currently, the SAP has more than

$80 million in unrealized losses on its books, which means investments that have lost value on paper, but haven’t yet been transitioned into real money.

State Treasurer Mark Gordon presented an idea of focusing investments from the SAP into the bond market Monday to the Select Committee on Capital Financing and Investments.

The strategy, if eventually approved by lawmakers, would create what is called a bond ladder, meaning the state would invest money from the SAP into bonds that would mature in one year, two years, three years and four years. As the first year’s bond matures, the income created from the investment would go back to state agencies, and the rest would be reinvested in a four-year bond, creating a continuing stream of money for state agencies.

“It does mean there’s probably less income that’s going to come off of those, because you’re not talking about a diversified portfolio,” said Gordon, who also is Wyoming’s governor-elect. “What the ladder strategy does is you’re buying in at a guaranteed rate of income for a portion of it.”

Patrick Fleming, chief investment officer for the Wyoming State Treasurer’s Office, said during a presentation to the committee that the goal of transitioning the SAP to a bond ladder is to prevent it from experiencing some of the losses it’s had in the past.

“If you look at the 430 or some agencies (who have money in the SAP), half of them live off the income that’s produced from the asset allocation,” Fleming said. “So having emerging market debt, and these other assets that can go up and down and create these losses, isn’t necessarily a good allocation for these agencies.”

Gordon said now would be a good time to make the transition because of the volatility in the market. As the United States dollar gets stronger, investments in emerging markets have ended up leading to losses in the SAP. Since the SAP is prevented by state statute from investing in the equity market, some of the funds from that fund were put into emerging markets, which are considered high risk, high reward.

“The problem is if the dollar gets stronger and our economy is doing better than the rest of the world, that’s just going to drive the losses bigger,” Gordon said. “We’re really talking about changing strategies and approaches to provide a much more stable funding structure for those agencies that rely on that portfolio.”

Gordon said one possibility that could be considered by lawmakers is to create a hybrid investment strategy for the SAP. For agencies that rely almost solely on money coming from that fund, their investments would stick with the bond ladder strategy. But for other agencies that only rely on a small portion of that money for their funding, the state could decide to increase the investment risk with the hopes of netting larger profits.

“I think we gave them some really good options, and if a hybrid works, a hybrid works,” Gordon said. “We just think there’s a way we can solve this.”