In a nutshell, Kent County has an investment policy that focuses on three priorities: safety, liquidity and yield — and in that order.
Kent County Treasurer Kenneth Parrish follows that policy for the county’s investments. He does the same for the county’s investment pool, which includes investments from other governmental units and public bodies such as the Grand Valley Metro Council. And even though safety has been the primary priority for years, making secure investments became even more of an issue for Parrish last year.
“Over the past year, safety has become an even greater watchword for us,” said Parrish during his annual report on the county’s investment pool.
Parrish said safety has become a bigger investment concern due to bank failures. Last year, the Federal Deposit Insurance Corp. closed 140 banks across the country. Bank closures have totaled 41 this year, just through the end of March.
Roughly two-thirds of the $351.8 million in the pool was invested last year in certificates of deposit and money market accounts at 23 local banks. Parrish said the pool had investments with 25 banks in 2008, but he decided to drop two from the investment list for 2009. “We felt we were better off not having money with them,” he said, without identifying the banks.
So far, only one bank that has had a pool investment has failed. Irwin Union Bank and Trust closed last September and its assets were bought by First Financial Bank. Parrish said the pool didn’t lose any of the $17.9 million it had with Irwin Union when the FDIC closed it.
In 2009, for at least the third year in a row, Huntington Bank captured the biggest percentage of the pool’s dollars among the banks at 14 percent, or $40.2 million of the total $232 million invested in CDs and money market accounts. PNC, Flagstar, Fifth Third and Comerica rounded out the top five. Parrish can only invest up to 25 percent of a fund’s total amount with one institution, according to the county’s policy.
Parrish also said he put a greater emphasis on investing in money market accounts rather than CDs last year to stay as liquid as possible and because the insurance offered on money market accounts through the FDIC has a higher limit than CDs. So even though interest rates on CDs may be higher than on the money markets, Parrish said more of the pool’s investment funds were securer last year in the accounts.
“We have worked very hard to have greater security for our funds,” he said.
Parrish added that he has invested $25 million with several banks through the Certificate of Deposit Account Registry Service, which is a member network of financial institutions. Deposits made through CDARS are insured by the FDIC for up to $50 million; Parrish said he expects the insurance limit will rise in the near future. One drawback to the CDARS is that he can’t pick which banks to invest with, but the network gives him an alternative.
“We have the choice of identifying banks that we don’t want to participate with,” he said. “We don’t want to be with a bank that shuts down and then we’ll have to get our money back.”
With the Federal Reserve’s overnight lending rate to banks staying at roughly 0.25 percent through all of last year, Parrish said the 2009 return to the investment pool was 1.8 percent.
“The days of 6 to 7 percent, when I started this job, are gone. It takes a while for us to reflect the market,” he said of the earnings rate for such a large pool. “I expect that we will stay above 1 percent.”
The pool, which has 600 separate funds, had a balance of $351.8 million at the end of 2009. Parrish said about $60 million of that investment total belongs to units other than the county.
“That number is higher than usual because many units are coming to the county for security,” he said.
The city of Grand Rapids is the latest to announce it is jumping into the pool. About a month ago, City Treasurer Al Mooney said the city would invest from $20 million to $25 million in the pool to diversify its short-term investment portfolio and to capture a higher return rate on those investments.