BRADENTON, Fla. - In what may be just the first competitor to emerge as an alternative to Florida's troubled state-run Local Government Investment Pool, Davidson Fixed Income ManagementInc. yesterday announced the opening of a pool run by local governments.
The Florida Surplus Asset Fund Trust, or FLSAFE, begins operations with Davidson as investment adviser and administrator of $775,000 in initial investments. It already has received a AAAm rating from Standard & Poor's, the highest rating available for a stable value investment pool.
The new pool was established to meet the daily liquidity needs of local governments. Its top priorities are to provide safety of principal, daily liquidity, transparency of operations, and competitive yields, officials said.
Initially, FLSAFE is being overseen by a board of trustees comprised of officials from Traditions Community Development Districts Nos. 1-3. CDDs are quasi-governmental entities in Florida that can sell municipal bonds to finance infrastructure in housing and commercial developments.
Henry "Hank" Fishkind, chairman of the FLSAFE board, is a noted economist from the Orlando area and secretary of the Traditions CDDs involved in the pool. Jim Anderson, vice chairman of the FLSAFE board, is chairman of the Traditions CDDs. Joe McLaren, secretary-treasurer of the FLSAFE board, is district manager of the Traditions CDDs.
The number of trustees is expected to expand as other local governments join the pool, said Chris Blackwood, Davidson managing director
The new pool is an outgrowth of troubles encountered by the State Board of Administration late last year when concerns arose about investments related to subprime mortgages that prompted a run of withdrawals from its pool. The state pool had assets of $27 billion on Sept. 30, 2007. As of Feb. 1, the market value of the state pool's assets was $10.4 billion, including nearly $2 billion in a restricted fund containing downgraded and defaulted securities.
Since the state-run pool problems occurred, the SBA has obtained a AAAm rating from Standard & Poor's for the $8 billion in assets that are segregated from the troubled securities.
"Everybody saw what was happening in Florida," Blackwood said, referring to the evolution of FLSAFE. Blackwood, who said his firm has an office in Orlando, approached Fishkind with a presentation about creating the new pool.
Blackwood said a total of 16 CDDs have joined the pool, providing seed funding of $775,000. He predicted that a dozen cities, counties, school districts, and other CDDs would be on board with another $100 million to invest by the end of February.
The opening management fee for participants is 18 basis points, but the fee will drop as the assets grow, Blackwood said.
Davidson has managed one other investment pool called the Colorado Surplus Asset Fund Trust, or CSAFE, for 13 years. It also is rated AAAm by Standard & Poor's. Blackwood believes the company's experience in managing CSAFE's $1.5 billion in assets helped the Florida pool receive Standard & Poor's highest rating.
In a press release yesterday, Standard & Poor's acknowledged the FLSAFE rating and said it was based on the agency's analysis of the fund's credit quality, market price exposure, and management.
"The AAAm rating reflects the fund's extremely strong capacity to maintain principal stability and to limit exposure to principal losses due to credit, market, and/or liquidity risks. This is achieved through conservative investment practices and strict internal controls. We review pertinent fund information and portfolio reports weekly as part of our ongoing rating process," said a report by analyst Ruth Shaw.
More details about the new pool are available on its Web site at www.flsafe.org.
Davidson Fixed Income Management is a subsidiary of the Davidson Cos., which is based in Montana. The company's subsidiaries include D.A. Davidson & Co., a securities broker-dealer with an office in Orlando. q