BRADENTON, Fla. - The days when local governments in Floridaenjoyed high returns and low management fees on funds they placed with the State Board of Administration-run local government investment pool could be a thing of the past.
Federated InvestorsInc. will become the new manager of the state pool, SBA trustees Gov. Charlie Crist, Chief Financial Officer Alex Sink, and Attorney General Bill McCollumsaid yesterday.
While they have yet to sign a contract, an SBA official said Federated's management fee could be three basis points or lower and once a contract is signed, pool participants may be charged an additional fee for SBA staff assistance with operating the pool.
"Federated Investors' tremendous experience and 53 years of past performance in investment management makes this firm an excellent choice to manage Florida's local government investment pool" the trustees said in a joint statement yesterday. Federated's "outstanding record, along with its high quality customer service, will be a benefit to Florida's local leaders seeking a conservatively managed investment fund."
Before problems related to subprime investments popped up, SBA staff had managed the pool for a fee of 2.0 basis points or less since January 1982. Since 2004, the SBA has charged 1.5 basis points.
The SBA trustees late last year sought an outside manager after a run on the pool related to subprime mortgages. While the pool had no direct exposure to such investments, it does have investments in asset-backed commercial paper with subprime exposure.
Then the pool had assets of $27.14 billion from 995 participants at the end of the third quarter in 2007 when it yielded 5.77%.
To preserve the dwindling pool in December, it was divided into Fund A and Fund B. Distressed and defaulted securities were placed into Fund B. Withdrawal restrictions remain in place. However, separating the securities enabled Fund A to qualify for a stable, AAAm rating from Standard & Poor's.
As of yesterday, total assets of both funds were $8.89 billion held by 781 participants. As of Feb. 10, Fund A's 30-day rate of return was 4.37%. Fund B's 30-day rate of return was 4.04%.
BlackRock Financial ManagementInc. was chosen to serve as interim manager of the pool until Feb. 28. The firm is receiving a fee of seven basis points for managing Fund A and 39 basis points for managing Fund B.
In addition to hiring a firm to manage the pool, a search firm has been hired to find a new executive director of the SBA, which will continue to manage the state's $137 billion pension plan. While the pension plan is overfunded by about $9.1 billion, it holds $756.3 million of downgraded securities with subprime exposure.
Unlike the state-run pool, however, pension plan benefits are guaranteed under Florida law and are not dependent on investment results.
Local governments that withdrew from the state-run pool have either placed their balances in banks, certificates of deposit, or other short-term investments, and some have begun developing their own investment programs.
Last week, a new local government investment pool run by local governments called the Florida Surplus Asset Fund Trust opened. It is being managed by Davidson Fixed Income ManagementInc. with an initial fee of 18 basis points, but officials expect the fee to decline as the pool grows. q