Media Clips

August 06, 2008

Winter Springs may give SBA fund second chance
By Abraham Aboraya

Source: SemicoleChronicle.com

WINTER SPRINGS - For the first time since December, the city's financial staff is asking city commissioners to consider investing money in the State Board of Administration's Local Government Investment Pool that was rocked by potentially bad investments in December.
City officials have organized for representatives of the SBA fund to come to the city and give a presentation to commissioners to try and persuade them to reinvest their money in SBA. At the same time, representatives from the Florida League of Cities will also be there.
The meeting is scheduled for next Wednesday at 5 p.m.
"We're going to have a workshop, and we're trying to get both entities there at the same time as to where they see the market going," Commissioner Rick Brown said. "The Florida League of Cities has an investment portfolio as well, which is similar ... to the SBA."
The SBA fund was frozen after some municipalities got wind that they had invested in the sub-prime mortgage market. Before the fund was frozen, it was drained from $25 billion to $15 billion.
But that was more than eight months ago. Since then, the funds that were invested in the sub-prime market were walled off from the rest of the fund. Winter Springs started out with $4 million in the bad fund, and have since drawn that down to $1.3 million. The city has also pulled an additional $6.6 million out of the good fund and invested it in treasury bills.
There's been legislation at the state level to make the fund more transparent by increasing their reporting requirements, both to watchdog groups and to the investors, like Winter Springs. The fund is now rated by Standard and Poor's, and has achieved the highest rating a fund can get, "AAAm."
"Essentially, this is a more conservative investment approach than was used previously," said Dennis MacKee, the communications director for the SBA. "Clearly, it's a lot more transparent now and professionally managed."
Additionally, the SBA fund charges less to participate than most hedge funds, and the returns are typically better.
Winter Springs, for example, has been investing in Treasury Bills, commonly called T-Bills, as their primary investment for their short-term funds.
"It depends upon the maturity of the T-Bill," said John Benton, the acting senior investment policy officer with the SBA, "but typically, shorter-term T-Bills are yielding lower returns than the SBA."
During a time of budget crunches, that lower return can mean a lot - about $125,000 annually is the conservative estimate of the city. Because property taxes are collected once a year, that money is typically invested and then drawn down as the bills come in.
Kevin Smith, the general services director for Winter Springs, said the city has three goals when it comes to investing taxpayer money. First and foremost is the safety of the money, second is the liquidity and third is the return.
"SBA traditionally, except for the debacle last November, has been safe, been liquid and had the best returns," Smith said. "We need to decide if SBA has cleaned up their act, if they have their house in order. ... It seems like they're doing a lot of things to get their house in order."
There's also been new leadership. Bob Milligan was named as the interim director of the fund after it was frozen, and they are currently in negotiations with Ashbel C. Williams Jr. to be the executive director and the chief investment officer.
Two of the managers of the SBA fund were recognized in early June by the Millstein Center for Corporate Governance and Performance at the Yale School of Management as rising stars of Corporate Governance. Both Michael McCauley, the senior corporate governance officer, and Tracy Stewart, the corporate governance manager, were on the list of 56 people recognized internationally.
Overall, the Local Government Investment Pool is one of 33 funds managed by the SBA, which has total values of more than $160 billion. Whether or not commissioners will be changing the investment strategy is yet be seen.