Participants in the state-run Local Government Investment Pools may soon see slightly higher returns.

The Arizona State Board of Investment, which oversees the investments made through the state Treasurer’s Office, on May 21 approved changes that allow the pools to invest in securities with longer maturities.

Besides handling the state’s money, the Treasurer’s Office also runs two investment pools open to local governments in the state. The local governments pool together to earn a return on funds that aren’t needed immediately. One pool, dubbed Pool 5, invests in a mix of government-backed and high-grade corporate securities with relatively short-term maturities. The other, called Pool 7, invests only in U.S. government-guaranteed fixed-income securities.

Prior to the change, Pool 7 could buy only fixed-income securities with maturities of a maximum of 18 months. The Board of Investment on May 21 voted 5-0 to increase the maximum maturity to two years. With the same motion, the Board of Investment also agreed to extend the average maturity of the investment pools to 180 days, from the previous average of 120 days.

The Board of Investment also approved extending the maximum maturity of investments in Pool 5 to three years, up from 18 months, and extended the weighted average maturity to 240 days, from 120 days.

Deputy Treasurer E. Blaine Vance said the Treasurer’s Office sought the changes in the length of maturities and the weighted average maturity in order to participate in the highly traded market for two-year Treasury bills, a popular fixed-income investment that is offering about a quarter percentage point more in interest than shorter-term Treasury bills. In the corporate world, bonds in the three-year maturity range are highly liquid, which means they have a high volume for buying and selling without significantly affecting the price. The two-year Treasury bill closed May 22 at an annualized yield of about 1.33 per cent, while top-rated corporate bonds maturing in three years are currently yielding about 1.8 per cent.

Even with extending the maximum maturity to two years in the Pool 7 investments, the limitation on the weighted average maturity at 180 days means that only about 15 per cent to 20 per cent of the investments can be two-year Treasury bills, said Deputy Treasurer for Investments Patrick B. Hammons, which still assures there will be diversification in the investments.

The Board of Investments is made up of five members: state Treasurer David Petersen, Banking Superintendent Richard Houseworth, Department of Administration Director Betsey Bayless, Yavapai County Treasurer Ross Jacobs and Stephen Barnes, who runs his own private investment advisory firm. Mr. Houseworth and Ms. Bayless were absent from the meeting, and sent Deputy Banking Superintendent Kevin McCullough and Lee Baron, assistant director of the Financial Services Division of the Department of Administration as their representatives. —