Local Government Investment Pools (LGIPs) are the third type of municipal fund security recognized by the MSRB, alongside 529 plans and ABLE accounts. Unlike those programs, LGIPs serve government entities rather than individual investors.
What Is an LGIP?
- A pooled investment vehicle for local government entities such as cities, counties, school districts, and state agencies
- Allows smaller government entities to pool their cash reserves together for better investment returns and professional management
- Operates similarly to a money market fund in structure and objectives
- Managed by the state treasurer or a designated administrator
Think of it this way: A small town might have $2 million in cash reserves. On its own, it cannot hire a professional portfolio manager or access institutional-grade investments. An LGIP lets that town pool its money with dozens of other municipalities, giving everyone access to better returns and lower costs.
Key Characteristics
| Feature | Details |
|---|---|
| Investors | Government entities only (NOT available to individual retail investors) |
| Purpose | Short-term cash management for public funds |
| Structure | Trust or pooled fund (shares or units) |
| Management | State treasurer or designated administrator |
| SEC registration | Exempt (government securities exclusion) |
| MSRB classification | Municipal fund security |
Exam Tip: Gotchas
- LGIPs are for government entities only. Individual retail investors cannot participate, even though LGIPs function like money market funds.
- LGIPs are NOT registered with the SEC. They qualify for a government securities exclusion, despite operating similarly to SEC-registered money market funds.
Types of LGIPs
LGIPs typically fall into two categories:
| Type | NAV | Similar To | Risk Level |
|---|---|---|---|
| Stable NAV | Aims to maintain $1.00 per share | Money market mutual fund | Lower |
| Variable NAV | Fluctuates with market | Short-term bond fund | Higher (longer maturities) |
Exam Tip: Gotchas
- "Stable NAV" does NOT mean guaranteed. A stable NAV LGIP aims to maintain $1.00 per share, but this is not backed by FDIC insurance or any guarantee. The value could still fluctuate.
Typical LGIP Investments
LGIPs invest in high-quality, short-term instruments designed to preserve capital:
- U.S. government obligations and agency securities
- Certificates of deposit from domestic banks
- Commercial paper
- Corporate notes
- Money market mutual funds (SEC-registered)
- Municipal obligations from state and local governments
How LGIPs Differ from 529 Plans
Both LGIPs and 529 plans are classified as municipal fund securities by the MSRB, but they serve very different purposes.
| Feature | LGIP | 529 Plan |
|---|---|---|
| Available to | Government entities only | Individual investors |
| Purpose | Cash management | Education savings |
| Tax advantages | N/A (government funds are tax-exempt) | Tax-free growth and withdrawals |
| Investment horizon | Short-term | Long-term |
| MSRB classification | Municipal fund security | Municipal fund security |
Exam Tip: Gotchas
- All three municipal fund securities share the same MSRB classification: 529 plans, ABLE accounts, and LGIPs. The exam may test whether you know that LGIPs belong in the same regulatory category despite serving a completely different audience (governments vs. individuals).