Ratings for Local Government Investment Pools

1. Ratings for Local Government Investment Pools Roger Merritt, Managing Director Government Investment Officers Association Las Vegas, March 2012

2. Agenda / overview • Fitch’s rating criteria for local government pools • Credit Rating • Volatility Rating • Additional Risk Factors • Assessment of the pool management • Surveillance • New Market Developments • Downgrade/Outlook Negative on U.S. • Appendix A: Examples of research • Appendix B: Rating definitions

3. Rating Local Government Pools • Apply Global Bond Fund Rating Criteria • Rating for local pools comprises fund credit and volatility ratings • Includes assessment of capability of the pool management • Frequent reviews of pool holdings and other key risk metrics • Ongoing communication with the pool management, including on-site reviews

4. Fund Credit Rating • Measures vulnerability to credit losses • Factors in credit quality/diversification • Driven by weighted average rating factor (WARF). • WARF: the market value weighted sum of each security credit rating factor, affording credit to securities with shorter maturities.

5. Fund Volatility Rating • Stability of market risk profile as reflected by duration

6. Summary of Rating Guidelines

7. Surveillance is Key to Ratings • Active surveillance process is critical to ensure existing ratings remain appropriate • Monthly surveillance checks against Fitch’s rating criteria • Based on portfolio holdings and key credit and market risk metrics • Monitor mark-to-market valuation and investor concentrations • Periodic onsite reviews to assess the pool management, processes, procedures and systems • Rating commentaries available on www.fitchratings.com

8. Recent Developments: Effect of the U.S. Outlook Negative on the Rating of Public Funds • U.S. ‘AAA’ rating put on Outlook Negative Nov. 28, 2011 • No impact on pool ratings • Weighted Average Rating Factor was negatively affected however, • Negative effect may be mitigated by the short-term nature of securities. • Fitch views a WARF of 0.26 or lower as consistent with an ‘AAA’ Fund Credit Rating

9. Appendix A: Examples of Research • Full rating report: • Key rating drivers • Investment pool analysis • Information about pool management

10. Appendix B: Fund Credit Rating Definitions

11. Appendix B: Fund Volatility Rating Definitions