Local Government Investment Pools (LGIPs)
Local Government Investment Pools (LGIPs) are the third type of municipal fund security under MSRB Rule D-12, 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 under Rule D-12 |
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 under MSRB Rule D-12, 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 under Rule D-12 | Municipal fund security under Rule D-12 |
Exam Tip: Gotchas
- All three municipal fund securities share the same MSRB Rule D-12 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).