BRADENTON, Fla. — Florida’s State Board of Administration adopted a plan to restore shareholder confidence in its beleaguered local government investment pool yesterday, one that allows investors to make partial withdrawals.
The board also accepted the resignation of the pool’s executive director, Coleman Stipanovich.
Gov. Charlie Crist, Chief Financial Officer Alex Sink, and Attorney General Bill
McCollum, who oversee the SBA and its nearly 30 investment programs, voted unanimously to restructure the pool and to hire an investment manager to oversee it for the first time since 1982.
“I think it’s important that we get independent, professional management that has credibility,” said Sink, who won support for her motion that included hiring BlackRock Inc. to be interim fund manager for 90 days while the SBA seeks proposals for a permanent manager.
BlackRock initially was hired late last week for $125,000 to assess the Pool’s status, which was drawn down to $14 billion from $27.1 billion in the last two months as local governments and school districts withdrew assets out of concern over the pool’s investments related to subprime mortgages. In response to the run on the fund, the SBA suspended withdrawals and deposits while seeking strategies to stabilize the pool.
In a report to the SBA yesterday, BlackRock recommended a number of operating initiatives, which included hiring a fund manager.
The SBA also agreed with BlackRock’s plan to separate about $12 billion of high-quality investments in the pool from $2 billion of distressed securities by placing them into Fund A and Fund B, respectively. No withdrawals will be allowed from Fund B.
Initially, shareholders can withdraw up to 15%, or $2 million, of their holdings from Fund A, but the withdrawal allowance is expected to increase as the fund stabilizes. BlackRock will proceed with seeking a AAAm rating from Standard and Poor’s, which is expected to help lure participants back into the pool.
For entities needing additional liquidity, BlackRock will arrange a public-private partnership with banks to allow shareholders to borrow cash against their shares. Shareholders that need additional funds or cannot use the credit facility can make additional withdrawals for a fee, which was not discussed yesterday.
While the pool restructuring plan was acceptable to many representatives of various local governments and school districts, they objected to the imposition of fees.
Maureen Rischitelli, manager of Oakland in central Florida with about 2,000 residents, said because of restrictions on withdrawals the town might not be able to make its January debt service payments.
Plans are expected to be considered to assist cash-strapped governments.
SBA chief Stipanovich managed more than $190 billion in assets, including the state’s $136 billion pension plan and the pool.
“There is nothing more important to me, except my family and friends, than to restore confidence from the people in the State Board of Administration,” said Stipanovich, who held the job for seven years. “Governor, I hope my actions today will help the SBA move forward.”
Stipanovich had been criticized for failing to communicate to shareholders the full extent of pool investments in troubled subprime securities. He contended, however, that some media reports were erroneous and exaggerated the degree of risk.
The state pension fund Stipanovich managed has seen “extraordinary results, best in the nation perhaps,” McCollum said. He noted that a June 30 year-end report showed that the pension fund returned 18.7% in the 2007 fiscal year and 8.46% over the past 10 years. Florida’s pension plan had an actuarial surplus of $7.6 billion as of June 30, 2006.