Over the last several weeks more light has been shed on the State of Florida’s investment pool. Approximately three weeks ago some of the various school boards and smaller governments began questioning the composition of short-term instruments found in the Local Government Investment Fund. This coincided with SIV and other conduit headlines from Citibank leading to a multi billion dollar “bank run“.
Florida officials voted to suspend withdrawals from an investment fund for schools and local governments after redemptions sparked by downgrades of debt held in the portfolio reduced assets by 44 percent.
“If we don’t do something quickly, we’re not going to have an investment pool,” [Coleman] Stipanovich [executive director of the State Board of Administration which manages the fund] said at the meeting, held at the state capitol in Tallahassee. The fund was the largest of its kind, managing $27 billion before this month’s withdrawals.
Local authorities contemplate ways to stop the bleeding.
“We need to protect what is there in the interim,” said Governor Charlie Crist, a Republican and one of three trustees of the State Board of Administration along with Florida Chief Financial Officer Alex Sink and Attorney General Bill McCollum.
The fund has invested $2 billion in structured investment vehicles and other subprime-tainted debt, state records show. About 20 percent of the pool is in asset-backed commercial paper, Stipanovich said at the meeting today.
“There is no liquidity out there, there are no bids” for those securities, he said.
- According to Bloomberg.com, “The pool was created in 1982 to provide higher short-term returns for local schools and governments than were available at banks.” Just another example that “more money is lost reaching for yield than at the point of a gun.”
- Liquidity breeds illiquidity.