Montana: Short-Term Investment Pool Safe From Suspension

SAN FRANCISCO — Montana’s local governments and agencies need not fear for their investments in the state’s short-term investment pool, its managers said following a run on the pool last week. Because of its significantly different structure, there is no chance that withdrawals from Montana’s STIP will be suspended, as they were from the Florida local government pool last week following a run that stripped it of more than 40% of its deposits.The runs on the pools were triggered by fears over their exposure to asset-backed structured investment vehicles, including SIVs backed by subprime mortgages.Unlike the Florida fund, which was strictly for local governments, Montana state agencies are required to hold their money in the STIP, and the state’s deposits account for more than 70% of its deposits, according to a statement issued at the end of last week by the fund’s executive director, Carroll South, and its chairman, Terry Moore. Local government participation in the Montana pool is voluntary.“STIP is substantially different from the Florida pool in that it has a significant core of state agency funds that serves as an anchor,” the statement said. “This stable investor base helped to mitigate the impact of local government withdrawals this week.”Local entities withdrew more than $250 million from the fund, according to published reports from Montana. The fund had $2.4 billion in deposits before Nov. 27, when Standard & Poor’s downgraded to D an Axon SIV, of which the Montana fund holds $90 million, signaling its default.The STIP holds about $550 million in SIV investments, South said in a statement issued last week. Less than 3% of the pool’s SIV investments — and less than 1% of its total investments — are backed by subprime mortgages, the statement said.The Florida and Montana pools are not the only local government funds with exposure to SIVs gone bad.Distressed commercial paper issued by Cheyne Finance is held in local investment pools operated by King County, Wash. and Connecticut.Standard & Poor’s placed its top AAA fund rating for the King County pool on negative watch in October, citing its exposure to three distressed asset-backed securities, including Cheyne.The Connecticut short term investment pool, which had about $5.8 billion in deposits, holds about $100 million of Cheyne paper.Since the Cheyne default, state Treasurer Denise Nappier and her staff have issued reports to fund investors, pointing out that the state expects to recover its Cheyne investment eventually, that the fund is protected by a $52 million reserve, and that the amount of investments redeemable on a same-day basis exceeds the $1.5 billion deposited in the fund by local governments. The balance of the Connecticut fund is from state agencies.The Maine state cash pool in early August purchased $20 million in top-rated 23-day Mainsail II LLC commercial paper, which proceeded to collapse within 12 days, according to a fact sheet released Friday by state Treasurer David Lemoine. “The state holds 'senior’ Mainsail debt and expects to be paid in full,” he said. The cash pool manages about $760 million.King County also holds Mainsail II paper, as well as distressed Rhinebridge LLC paper.