Florida Acts to Bolster Investment Fund
By Stacy-Marie Ishmael in New York
Published: December 5 2007
Florida state officials yesterday took action to shore up its troubled $14bn investment fund, opting to isolate riskier assets and impose restrictions on withdrawals.
The state-run Local Government Investment Pool was hit by a wave of redemptions after investors discovered it held $1.5bn of subprime-related securities that had been downgraded to levels below investment guidelines.
In response, the State Board of Administration, which oversees the pool, last week halted withdrawals, preventing school districts and local governments from accessing money needed to pay wages and bills.
The board also hired BlackRock, the asset manager, to analyse the fund’s holdings and provide advice on how to reopen access to the pool, which was modelled on money market mutual funds and was supposed to be extremely safe and liquid.
Yesterday, the board approved BlackRock’s recommendation to split the pool into two, separating the subprime assets from the rest.
About 86 per cent - or $12bn - of the pool’s assets would be placed into one fund, which would continue to be run as a cash vehicle for investors. The remaining assets would be walled off into a second, non-drawable fund and held there until maturity.
BlackRock ruled out the possibility of selling the subprime assets to the state pension fund, which is also run by the SBA.
Assuming the proposal goes ahead as planned, investors would receive the majority of their funds in the next 12 months, according to BlackRock. The asset manager said the pool could be reopened on a restricted basis as early as tomorrow but there would be restrictions on withdrawals.
Investors will be allowed to make fee-free redemptions for up to 15 per cent of their holdings or $2m, whichever is larger. Redemptions in excess of those values would incur a fee.
Local officials who invested in the state pool said they would support the plan if they received guarantees they would not lose principal.
“The state should provide a guarantee of a 100 per cent return,” said Jeannie Gardner, director of financial services for the Florida League of Cities.
Charlie Crist, Florida’s governor, said: “What [BlackRock has presented] is prudent. It is logical. It restores confidence, and it’s done in a calm, smart way.”
Board trustees also voted to retain BlackRock as the interim manager of the fund, taking over the SBA for up to 90 days. They will seek an outside firm to run the pool.
Coleman Stipanovich, the SBA’s executive director of the state board, resigned just before the vote.