DALLAS -- Southwest Securities Group is starting an investment cooperative for local government agencies and has hired several former Texas treasury officials to manage the effort, which will compete with the state's TexPool program.
Under the Local Government Investment Cooperative [LOGIC] program, Southwest Securities will aim to get funds from some of the more than 4,000 cities, counties, and other government entities in Texas and then invest the monies in U.S. government securities.
"It looked like a good business opportunity for us. We think we can provide competition for the state," Southwest's chief executive officer Don A. Buchholz said yesterday. "I'll bet many government agencies don't know about TexPool."
Southwest executives said they plan to offer competitive yields to TexPool, plus additional customer service and two investment portfolios, not just the one offered as part of the Texas treasury program.
One portfolio will have securities with an average maturity of six months or less and will be similar to the one offered by TexPool. The other portfolio will have government securities with an average maturity of 18 months.
"Initially, LOGIC includes two very conservative portfolios composed of U.S. government securities and financial obligations backed by the U.S. government," said Linda Patterson, principal of Patterson & Associates, a Texas investment firm that will serve as fund manager.
Patterson, who will work on the program with three employees at a Southwest Securities subsidiary, Trust Co. of Texas, is one of three people who used to be affiliated with the Texas treasury. She was an assistant deputy state treasurer and director of investments.
In addition, Richard Scott, who help found TexPool in 1989, and Patrick Shinkle, who was the treasury's manager of local government programs, including TexPool, will head the administrative team that will establish LOGIC.
Despite the aggressive effort by Southwest, Texas treasurer Martha Whitehead said she does not think the company can successfully compete with the state's program, which only covers costs and does not turn a profit. TexPool's fee is 2.5 basis points on invested assets.
"We are not profit oriented, and we get a lot of accolades on the program," Whitehead said. "TexPool is at an all-time high, and we are dedicated to the continued marketing of the program."
Whitehead said she expects the program to continue to grow from its current size of more than $10 billion in assets invested by about 1,300 government agencies. About 10 staff members are involved with the TexPool program.
Southwest executives said they believe they can compete by providing higher quality investments. "The bottom line will be the return the government agency gets on their money, not how much it costs," Buchholz said.
Southwest executives said they expect to charge between 15 to 20 basis points on invested assets, with the higher costs to be made up by higher yields on investments.
Darryl Pounds, chief executive for the Trust Co. of Texas, said an organizational meeting to launch the investment pool will be held within two weeks, at which a board of trustees made up of local government officials will be announced. In addition, plans call for selecting a 24-member advisory board.
Southwest Securities Group is a securities, investment banking, and asset management company based in Dallas. It has been named one of the fastest growing small companies in the nation by a national business magazine, and its revenues have soared from $48 million in 1991 to a projected $100 million when Southwest's fiscal year ends June 30.
