Md. government pool feels `secure' on assets


December 04, 2007|By Laura Smitherman | Laura Smitherman,SUN REPORTER

A Maryland investment pool used by local government entities, including school boards, libraries and cities, is seeking to reassure participants that it has nominal exposure to subprime mortgages and other troubled investments.

The effort came as a similar investment pool in Florida, once the largest in the U.S., froze assets last week, prompting government entities across the state to scramble to raise cash for payroll and other routine expenditures.

The Florida pool halted withdrawals after investors pulled $13 billion last month. They were responding to the fund's disclosure that it held $1.5 billion in downgraded and defaulted debt.

The Maryland Local Government Investment Pool said in a letter to nearly 300 participants Friday that the $2.8 billion fund does not invest in commercial paper backed exclusively by mortgages or in structured investment vehicles (SIVs), which were among the biggest buyers of pooled mortgages. The state fund was formed after some localities got burned in the savings-and-loan scandals of the 1980s.

The fund does have some exposure to mortgage assets and collateralized debt obligations through commercial paper backed by broad portfolios that include those assets as well as student loans and credit cards. The pool has 4.6 percent of its holdings in all asset-backed commercial paper. Collateralized debt obligations (CDOs) also have lost value due to defaults on subprime loans.

David Rommel, the pool's administrator and vice president at PNC Institutional Investments, the fund's adviser, said the risk is minimal. He added, however, that managers plan to cut back on those investments by the end of the year.

Rommel said the fund has not experienced investor flight and achieved record assets Friday.

"We're trying to be as safe as we can, and we're secure in the securities we are holding," Rommel said. "As people read about what's going on in Florida, we wanted to stem the tide of people worrying."

Such public accounts, modeled after private money-market funds, invest in short-term debt such as Treasuries and are designed to be easily accessible. They give local governments a place to park money, while allowing them to pool assets to get a better rate of return.

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