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State Board of Finance accepts consultants— recommendations on liquidity, asset allocation and performance reporting
Summary
The State Board of Finance voted to accept a consultants— report recommending a 14% liquidity buffer (about $650 million), a 65% target allocation to longer-term investments (range 55–70%), and total-return performance reporting by asset bucket to improve accountability and benchmarking.
The Arkansas State Board of Finance voted to accept a financial policy report from outside consultants that recommends formal changes to how the State Treasury manages liquidity, allocates assets and measures performance.
Consultant Dr. Andy Terry told the board the Treasury—s cash-flow analysis over seven years supports holding a liquidity buffer of roughly $650,000,000 — about 14% of the portfolio — to cover maximum daily outflows and include bank deposits held by the Treasury. He said the recommendation comes after validating the Treasury—s model and adding more data to estimate maximum liquidity needs.
On asset allocation, the consultants recommended a target allocation that would place 65% of the portfolio in a longer-term bucket, with a tighter range of 55%–70% to reduce volatility in allocation decisions. They proposed keeping liquidity at a minimum of 14% and using the remaining share as a short-term buffer to support daily operations.
The consultants also recommended moving to total-return performance measurement and using —investable— benchmarks (index funds or ETFs) that Treasury could practically hold if the office pursued a passive alternative. They cautioned reported returns will look more volatile once unrealized gains and losses are included, but said total-return reporting allows an —apples-to-apples— comparison with common investable alternatives and better explains performance over the long term.
Board members voiced support for the report and for giving Treasury staff time to prepare implementation recommendations. Chair formally moved to accept the consultants— report as presented; the motion was seconded and the board voiced approval without any opposition recorded.
The board directed the Treasurer—s Office to return with a recommended implementation plan, including how to incorporate the target asset allocation and total-return benchmarks into reporting and oversight. No immediate changes to holdings were recorded at the meeting; the vote accepted the consultants— recommendations for further implementation work by staff.
