Nine months after its launch, the Texas Short Term Asset Reserve, a localgovernment investment pool managed by First Southwest Asset Management Inc. and J.P.Morgan Fleming Asset Management, has reached $1 billion in deposits from 120 municipalparticipants.
"I don't know of another local government investment pool that has grown to this levelin less than one year," said Paul Schlosberg, chairman and chief executive officer ofFirst Southwest Asset Management. "Moreover, this success was achieved at a point whenrates were not friendly; in fact, at a point when the overall economic environment wasnot friendly or supportive."
The pool, commonly known as TexSTAR, provides participating Texas local governments withliquidity and diversification, as well as a competitive rate of interest on theirinvested funds.
"They can make unlimited withdrawals and deposits throughout the day, either by phone orwith our online platform," Schlosberg said. "They can access their account informationany time of day or night. We listened to our participants discuss their needs and, usingthe best technology available, developed software and a customer support system to makethose things possible."
TexSTAR invests in obligations of the United States or its agencies, fullycollateralized repurchase agreements that are secured by obligations of the U.S.government, and SEC-registered, triple-A rated, no-load money market mutual funds.
"The Texas Public Funds Investment Act dictates very clearly the securities that areeligible for local government investments," Schlosberg said.
Investments in bonds issued by the Ohio-based health care finance firm National CenturyFinancial Enterprises recently resulted in $131 million in losses for participants in anArizona-based local government investment pool.
The company, which loaned money at a percentage to health care concerns awaitinginsurance claims payments, declared bankruptcy late last year amid allegations that bondreserve funds were short nearly $1.3 billion. The company's debt, which had been ratedtriple-A and was later downgraded, is now the subject of a federal investigation.
Schlosberg said that such investments would not be eligible for TexSTAR involvement,adding that no National Century debt was purchased by TexSTAR.
"J.P. Morgan does a very good job handling the portfolio," he said, adding that the NewYork-based firm handles portfolio management and back-office systems for TexSTAR, whileFirst Southwest handles marketing and customer support. "Texas very clearly identifiesthe types of securities that a local government can invest in - that would not be one ofthem."
The safety of the investments included in TexSTAR's portfolio is a key draw formunicipalities, said Bill Chapman, deputy chief information officer and chief financialofficer for the city of El Paso. His city had been a participant in another localgovernment pool, TexPool, while First Southwest and J.P. Morgan managed it. When TexSTARwas formed, he moved $90 million into the new investment pool.
"We were one of the first, if not the first, participants in TexSTAR," Chapman said. "Wemoved a large portion of our funds to TexSTAR, quite frankly because of the faith wehave in First Southwest. We do still have money in TexPool, as well as LOGIC [TexasLOGIC I Class A-Liquid Asset Portfolio]. But we like the people at First Southwest, wetrust their product and like their online platform, and we like the liquidity we havewith TexSTAR."
Chapman, who sits on TexSTAR's participant-run board, said the pool also offers economicdata that he finds helpful. Schlosberg said such data is one of the pool's bestattractions.
In addition to TexSTAR, LOGIC, and TexPool - which are all triple-Am rated - Texas localgovernments can choose to invest with other triple-Am rated pools. These includeTexasDAILY, which is managed by Public Financial Management Inc.; the triple-Am ratedLone Star Investment Pool Liquidity Fund, sponsored by the Texas Association of SchoolBoards; and MBIA Municipal Investors Service Corp.'s Texas Cooperative Liquid AssetsSecurities System.
