Florida chief financial officer Alex Sink last week said the state treasury maintains a diversified bond portfolio with minimal subprime mortgage exposure. Subprime housing holdings represent approximately 0.7% of the treasury’s total $24 billion investment portfolio.“The securities held are not expected to default, as most of the subprime holdings maintained by the state treasury are seasoned holdings that have been performing for years,” according to a press release by Sink. “Additionally, these holdings are senior in priority and are believed to contain sufficient credit support to cover the state’s investment.”Sink called for an analysis of the treasury’s investments after rating agencies downgraded several mortgage-backed securities previously rated as high as triple-A.“It’s clear that we can no longer solely rely on an investment’s credit rating when making management decisions,” the state’s CFOsaid. “In light of the current market conditions, we are tightening our risk tolerances to better safeguard the people’s money.” Sink had asked the State Board of Administration to review its $187 billion in investments and to present the findings to the Florida Cabinet on Nov. 14. The board manages the state’s $138 billion pension fund and other investment pools, and reports to the governor and Cabinet. SBA director Coleman Stipanovich told the Cabinet the state’s pension fund was properly diversified and not at risk. Stipanovich also said SBA bond and money market programs have maintained overall high ratings, but there were downgrades on about $2.28 billion worth of investments. He said the board has weathered a number of events since 2000 and he believed the current situation would pass.The SBA is looking at a number of possibilities, including getting a rating from Standard & Poor’s, Stipanovich said.“There just aren’t many people who avoided this,” he said, referring to subprime investments. “We have our share of exposure.”Despite Sink’s attempts to calm fears about the potential loss of investments in subprime mortgage exposure, local governments reportedly have withdrawn nearly a quarter of their investments in Florida’s $27 billion local government investment pool, which the SBA has managed since 1982.But Stipanovich said it is difficult to tell whether the withdrawals are because of subprime fears or just typical budget-related withdrawals. “Folks are seizing an opportunity to sensationalize an event,” he said, arguing that the degree of exposure and risk to investments has been exaggerated. Sink said treasury managers also reviewed a number of other investments that could potentially be affected by the subprime credit crisis, including collateralized debt obligations, so-called Alt-A or A-minus type mortgages, and structured investment vehicle obligations. She said total exposure in such investments is minimal and that they are senior-class investments not expected to default.

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