Understanding Investment Pools

Agencies and organizations use investment pools to collect and concentrate surplus funds from various departments and programs for investment purposes. The departments and programs that deposit their surplus funds into the investment pool are referred to as participants. Each participant is assigned an individual account number in order to track their fund transactions within the investment pool.

An investment pool administrator organizes the investment pool and manages the fund's investments similar to that of a portfolio manager. The funds in the investment pool are invested by either the pool administrator or by an external investment manager. The system stores only the investment manager's contact information.

Participants do not enter transactions into the investment pool system, but rather communicate their requests to deposit, withdraw, or transfer funds to the pool administrator. The pool administrator then enters the appropriate data—participant and transaction information—into the system. Participants may transfer funds from one account to another within the same investment pool, but may not transfer funds from one account to an account belonging to another investment pool.

If the pool is set up using share accounts, then shares are distributed to the participants pool account. Share balances are then updated periodically for deposits, withdrawals, and transfers.

Interest and fees are periodically distributed among the participants of the pool.

The method used for transferring funds depends on the structure of the organization and pool's participants. Funds can be transferred by way of accounting book entries or between the participant's bank and the investment pool's bank through electronic wire transfers and Automated Clearing House (ACH) transactions.

Periodically, the investment pool transfers funds to an external investment manager (if applicable) or to the internal investment system. The investment manager provides the pool with reports containing the current market value, income, interest and fees data. Using these data, the pool administrator updates the pool with this information by entering the market value information online and in turn updates the market value for the pool and each participant. The new share price (if applicable) is also computed based on the new market values and the number of shares in the pool.

Besides providing investment and fund management expertise to the participants, the pool administrator also provides accounting and financial reporting for each participant's funds as well as consolidated reporting for the entire investment pool.