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Stocks & Flows: Takeaways from the 2018 GFOA Conference
July 9, 2018
It’s been two months since the GFOA hosted its 2018 annual conference in St. Louis, and, before it gets too far in the rearview mirror, I wanted to offer a few takeaways for issuers.
The conference was excellent overall. Given the huge success of the GFOA’s 2017 conference in Denver, I thought going into the 2018 event that St. Louis had its work cut out for it to match. It delivered big time. The GFOA did another terrific job packing the schedule for issuers, including timely sessions on topics such as the new normal for the municipal bond market post-tax reform. The sessions were augmented by speakers who really framed success for members. Kudos to Chris Morrill and Pat McCoy for putting together a great event.
The GFOA’s annual conferences continue to get better and better, and if you’re an issuer and not regularly attending this event, you should give it a try in 2019 when L.A. hosts the next one. You’ll come away more knowledgeable and energized from the interaction with your finance colleagues from around the country. It’s a tremendous amount of professional development packed into three days.
Again, comparing the 2018 conference with 2017, I didn’t think the keynote in Denver (Jim Collins) could be matched in terms of offering valuable advice and perspective to public sector CFOs. But the address by New York Times columnist Thomas Friedman was outstanding.
I wanted to highlight a theme that was covered by Friedman in his presentation to the membership. He covered several aspects of his new book, “Thank You for Being Late,” and I was particularly struck by his message about the differences between stocks and flows.
When I hear the term “stocks and flows,” I think about a balance sheet and an income statement. Or about a bathtub and a faucet. Friedman was talking about stocks and flows in the context of trade and culture and information. He pointed out that most of the big and enduring cities in the world are built near water, either streams, rivers or the ocean. Why? Because water brings life. Running water can provide energy and bring fertility to the ground, but also to society. He tied this back to some of the most successful technology companies of today — they are built close to the flows of information and tap into it.
This concept of stocks versus flows is also meaningful for issuers who are looking at how best to attract more investors, diversify their investor bases, and position themselves to issue bonds successfully for the next 20 or 30 years. The new dynamic in the muni bond market — driven by investor demands, stepped up regulatory concerns, and a more expensive yield curve — requires issuers who want to be successful to do more when it comes to their investors.
By “do more” I mean provide bond investors with a better experience and with real efficiency gains. This starts by thinking of investor disclosure as a flow, not as a stock. Producing a thorough and easy-to-read Appendix A to your POS prior to your next bond sale is a stock; providing a stream of current data and documents to investors in between bond sales is a flow. The stock is important and meaningful, but it represents a quantity or quality existing at a single specific point in time in the past. For issuers, this might mean your financial position as of the month prior to the bond sale. A flow by contrast, is all of the financial data that you or your government produce over time. It shows investors the changes over time. That’s a lot more valuable.
Investors need and want that flow of issuer information; they want to open the faucet and receive a steady stream. Successful issuers know that it’s a much more valuable investment to establish a good disclosure flow, rather than simply fill the tub when it’s time to issue bonds.
I welcome your thoughts.