What does a Local Government Investment Pool (LGIP) operate like?

A Local Government Investment Pool (LGIP) is designed to provide a mechanism for government entities to invest their surplus funds in a manner similar to a mutual fund. This type of pooling allows various local governments—like municipalities, counties, and school districts—to combine their financial resources for investment purposes, facilitating greater purchasing power and potentially yielding higher returns than if they were to invest individually.

The structure and operation of an LGIP resemble a mutual fund in that it aggregates funds from multiple governmental entities and invests them in a diversified portfolio of short-term, low-risk securities. This collective approach benefits participants by providing access to a professionally managed investment option that adheres to risk and liquidity parameters suitable for public funds.

In contrast to private investment funds, which are targeted toward individual investors and may engage in a wider range of investment strategies, LGIPs are strictly regulated and tailored to conform to the investment needs of public sector entities. They also differ significantly from stock market investments, as LGIPs primarily focus on secure, short-term investments rather than stock equities, which involve higher risks. Lastly, while nonprofits may play various roles in supporting government financing, LGIPs specifically function as investment tools rather than organizations designed for charitable funding.