DALLAS - TexPool, the oldest and largest local government investment pool in Texas,recently hit an all-time account summit with nearly $17 billion of investments, justweeks after launching a second pool that managers hope will appeal to investorparticipants interested in branching away from traditional pool securities.
Under the direction of Lehman Brothers and Federated Investors Inc., which were chosenas fund managers last year, the 14-year-old TexPool has managed to grow despitedifficult market conditions. Investments in TexPool, which is overseen by stateComptroller Carole Keeton Strayhorn through the Texas Treasury Safekeeping Co., hasdipped slightly to $16.38 billion since reaching its record-high investment level onFeb. 12.
"The high-water mark for local government pools is typically in February," said MarkConnally, a senior vice president with Lehman who oversees the day-to-day operations ofTexPool. "There's a distinct correlation to the collection of tax revenues and thefunds' high-water points. Typically, the funds' levels begin to drop after Feb. 15,which is a big bond payment date for a lot of these local governments."
While many investors struggled in the wake of market losses, TexPool managed to grow byabout $500 million last year. Connally said the gain could be attributed to the strengthof TexPool, which has about 1,700 participants and a number of mature investments, andthe Lehman Brothers/Federated Investments team.
According to Neal McCabe, a managing director for Lehman who heads the division thatmanages TexPool, Texas' conservative comptroller is another key strength of TexPool.
McCabe said he is so pleased with the TexPool results that he is taking a look at usingthe model in other local government pools around the country.
Under the division of labor in the Federated/Lehman Brothers partnership, Lehman handlescustomer service, marketing, and the daily operations of TexPool, while Federatedadministers the investments themselves.
According to Deborah A. Cunningham, a senior vice president and portfolio manager withFederated, "Investment success has come from our diligent approach to credit analysis,our attention to counterparty credit assessment, and our acquisition of higher-yielding,longer-dated paper, while at the same time providing the liquidity money market productsrequire."
James F. Getz, president of the retail sales division of Federated Securities Corp., adivision of Federated Investments, said that while many local government pools areunderperforming by seven or eight basis points, TexPool remains strong because of anumber of older securities in the pool. He said, however, that some pool participantswere turning to the new TexPool Prime to get more yield.
While TexPool focuses on such traditional local government investments as Treasuries,repurchase orders, and government agency securities, TexPool Prime allows localgovernments to invest in such top-rated but higher-yielding securities as commercialpaper and certificates of deposit.
"We started TexPool Prime shortly after the first of the year," Getz said. "We havealready reached more than $100 million in investments."
In addition to TexPool, other investment pools available to state and local governmentsinclude TexSTAR, which is managed by First Southwest Asset Management Inc. and J.P.Morgan Fleming Asset Management; Texas LOGIC I Class A-Liquid Asset Portfolio;TexasDAILY, which is managed by Public Financial Management Inc.; the Lone StarInvestment Pool Liquidity Fund, sponsored by the Texas Association of School Boards; andMBIA Municipal Investors Service Corp.'s Texas Cooperative Liquid Assets SecuritiesSystem.
