WHG often finds that its clients have large cash balances at their banks and hold relatively few investments.
While having large balances of cash is not a bad thing, this excessive liquidity prevents municipalities from realizing their maximum potential investment income. Additionally, WHG often finds that its clients’ portfolios consist of only Certificates of Deposit (CDs). CDs are a good and safe investment, but a more diversified portfolio can yield significant and material returns.
The WoodHill Group Solution
WHG employs a multi-point process to help its clients realize their maximum potential with respect to cash holdings and investment portfolios.
Our first step is to use data analytics to perform a detailed cash flow analysis. We use raw General Ledger data from the most recent three years, often consisting of hundreds of thousands of lines of data. We parse this data to create a model that succinctly illustrates the average cash balances and outflows by month and year.
Our second step is to use the cash flow analysis to accurately identify the mean monthly idle cash balances. This, in turn, allows us to precisely identify how much cash should be held in the bank to satisfy monthly cash flow needs. We can then determine how much cash should be invested short-term in a liquidity back-up investment vehicle, and how much cash can be invested long-term.
Our third step is to develop an investment portfolio strategy that will maximize investment yields. Our recommendations always maintain the safety of invested funds, and conform to Michigan Public Act 20 of 1943 and the municipality’s investment policy. We suggest investment types, amounts, and maturity horizons based upon each client’s needs.
Our fourth step is to assist our clients with the construction of their investment portfolios. We help our clients understand the investment process and the necessary elements of investment portfolio management. We then assist with the identification and engagement of brokers, dealers, investment advisors (if necessary), and custodial safekeeping agents.
The result of this process is a Cash Flow Analysis and Investment Plan document that can be used immediately to put idle cash to work yielding income for our clients. This plan can be easily updated in future years to reflect fluctuations in cash balances and/or outflows, caused by things such as changes in operations or major capital projects.
Since 2021, WHG has performed this service for five of its clients. The results speak for themselves:
In early 2021, a City of 6,800 residents held average monthly bank balances of $9 million. The City held one CD at a local bank. Our analysis and investment plan revealed a potential to earn $190,000 annually for the City.
In early 2021, a growing Village of 6,600 residents held average monthly bank balances of $5.5 million and held a few CDs at local banks. Their annual investment income was approximately $500. Our analysis and investment plan revealed a potential to earn $50,000 annually for the Village.
In mid-2022, a small Library held average monthly bank balances of $430,000. The Library held three CDs. Our analysis and investment plan revealed a potential to earn $15,000 annually for the Library.
In mid-2022, a Township of 8,700 residents held average monthly bank balances of $6 million. The Township had minor investments in CDs and a governmental pool earning approximately $60,000 annually. Our analysis and investment plan revealed a potential to earn $140,000 annually for the Township.
In late 2022, a City of 5,000 residents held average monthly bank balances of $4.9 million. The City had minor investments in CDs with no material investment return. Our analysis and investment plan revealed a potential to earn $200,000 annually for the City.
With a relatively small investment of time and money, WHG can help your municipality understand its cash flow position and realize its maximum potential investment income.