Mark-to-Market Reporting for Public Investment Portfolios

Type: 
Best Practice
Approved by GFOA's Executive Board: 
February 2008
Background: 

Market risk is significant in public investment portfolios. Due to price volatility, valuing investments at their current price is necessary to provide a realistic measure of a portfolio’s true liquidation value. Over time, reporting standards for state and local government investment portfolios have been enhanced so that investors, governing bodies, and the public remain informed of the current market value of the portfolio. Regular disclosure of the value of a governmental entity’s investments is an important step to furthering taxpayer and market confidence in state and local government investment practices. The Governmental Accounting Standards Board (GASB) has also recognized the need to report investments at fair value at fiscal year end. Government officials should be aware of state, local, accounting, and rating agency requirements regarding markto-market practices.

Recommendation: 

GFOA recommends that state and local government officials responsible for investment portfolio reporting determine the market value of all securities in the portfolio on at least a quarterly basis. These values should be obtained from a reputable and independent source and disclosed to the governing body or other oversight body at least quarterly in a written report. The independent source of pricing should not be one of the parties to the transaction being valued and could include:

  1. a broker or other financial institution who was not a counterparty to the transaction,
  2. the custodial bank if the bank was not a counterparty to the transaction,
  3. publicly available publications such as the Wall Street Journal, or
  4. other pricing services for which a separate fee would be paid.

It is recommended that the written report include the market value, book value, and unrealized gain or loss of the securities in the portfolio.

If there is a significant event in the local or national economy that might affect the value of the portfolio, then a mid-term valuation of the portfolio should be conducted. Governments that employ a more active portfolio management style should consider more frequent marking to market and reporting.

Committee: 
Treasury and Investment Management
References: 
  • GASB Statement 31 and Implementation Guide, Accounting and Financial Reporting for Certain Investment and for External Investment Pools, March, 1997.
  • Investing Public Funds, Second Edition, Girard Miller with M. Corinne Larson and W. Paul Zorn, GFOA, 1998.
  • Investment Procedures and Internal Controls Guideline, GFOA, May 2003.
  • Elected Official's Guide Investing, Second Edition, Sofia Anastopoulos, GFOA, 2007.