Board won’t exclude 2 investment firms from Fla. bidding
May 14, 2008
The Gainesville Sun–May 13, 2008
The Associated Press
TALLAHASSEE, Fla.- Two major investment firms will advise Florida on financing its hurricane catastrophe insurance fund although Gov. Charlie Crist tried to exclude them Tuesday.
Crist wanted to keep Lehman Brothers and J.P. Morgan from joining the “cat fund” investment team because they had brokered deals and provided securities to the state’s Local Government Investment Pool, which nearly collapsed late last year.
The other two members of the State Board of Administration, though, refused to go along during a regularly scheduled board meeting.
“I’m defeated,” Crist said when neither would second his motion.
Attorney General Bill McCollum said it would be premature to act before an investigation of the local government pool is completed. Chief Financial Officer Alex Sink was worried Crist’s motion would leave only two other firms bidding to serve as senior managers for the project.
“It gives less incentive to the remaining two … to have their pencils sharp,” Sink said.
The state received proposals from 17 firms, including the four bidding to be senior managers. The team will provide investment banking and other financial services for the cat fund. All four companies that applied as senior managers, including Lehman and J.P. Morgan, were selected for the team by board staffers later Tuesday.
The nonprofit, tax-exempt fund provides low-cost backup coverage called reinsurance to private insurers as well as the state-created Citizens Property Insurance Corp.
The fund now has cash and other liquid assets of at least $7 billion in losses and the capacity to cover up to $29 billion through bonding, said Jack Nicholson, the cat fund’s senior officer. He said the team’s primary focus will be to develop a strategy for such a bond sale, if needed, in a market beset with liquidity problems.
The board’s interim executive director, Bob Milligan, said the companies will work independently and together on recommendations he hopes to submit to the board by June 10.
The state in the meantime has hired a law firm to investigate brokers who sold the Local Government Investment Pool mortgage-backed securities that wound up being downgraded below investment guidelines.
That prompted cities, counties, school boards and other local entities to withdraw money from the pool.
Crist was worried that the investigation won’t be completed before the board gets the cat fund recommendations and then it would be too late to exclude the firms.
The federal Securities and Exchange Commission, meanwhile, is conducting its own investigation of how the State Board of Administration managed the local government pool. The SEC is looking into the board’s investment guidelines and the research and analysis it conducted before buying the troubled securities.
The board hired Milligan, a former state comptroller, to replace Coleman Stipanovich who resigned during the run on the pool.