Commonwealth Investment Program Update
In the six months following the fiscal year ended June 30, 2008, investors experienced significant investment volatility, unprecedented market value declines and increased demands for liquidity. The Treasury Department was no exception. The following pages provide an update of the effects the current market crisis has had on the investments that comprise the Commonwealth Investment Program for the period July 1, 2008, through December 31, 2008.
On December 31, 2008, roughly $2 billion of Commonwealth funds were invested in a “cash and cash equivalent strategy” in Treasury’s Liquid Asset Pool (Pool 99). The six-month return for the Liquid Asset Pool (Pool 99) was positive and exceeded its assigned benchmark by 35 basis points. Specifically, the Liquid Asset Pool’s six-month return was 1.20% versus its benchmark return of 0.85%.
Approximately $4 billion of Commonwealth funds were invested in a “mixed strategy” in Treasury’s Common Investment Pool (Pool 98). On December 31, 2008, the pool was comprised of Cash and Cash Equivalent investments totaling 13%, Strategic Investments totaling 13%, and Core investments totaling 74%. Core investments consisted of equities, fixed income securities, and alternative investments. The six-month return for the Common Investment Pool as of December 31, 2008, although negative, exceeded its assigned benchmark by 211 basis points. Specifically, the Common Investment Pool’s six-month return was -5.03% versus its benchmark return of -7.14%.
As a point of reference, the six-month returns for the S&P 500 Index and the Barclays Aggregate Bond Index were -28.48% and 4.07%, respectively.
Commonwealth Investment Program Comparison
As reflected in these charts, a greater percentage of assets comprised the Cash and Cash Equivalent category of the Commonwealth Investment Program on December 31, 2008 versus June 30, 2008. This shift in assets resulted from the change Treasury recently implemented to minimize the magnitude of realized losses to Pool 98 participants. Effective December 1, 2008, all Pool 98 participants with excess cash inflows began purchasing shares of the Liquid Asset Pool (Pool 99), which seeks to maintain a stable net asset value of $1 per share by investing in short-term, fixed income securities. Daily participant outflows of cash are accomplished by first redeeming available shares from Pool 99 and only after those shares are exhausted, are redemptions made from Pool 98 to cover remaining expenditures. This process minimizes the amount of gains or losses realized by Pool 98 participants as fewer shares, if any, are redeemed for a gain or loss.
Furthermore, the combined assets that comprise each investment pool declined by approximately $5.3 billion, or 44% from June 30, 2008 to December 31, 2008. This decrease was due almost entirely to participant withdrawals.
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