FLORIDA INVESTMENT PLANS LOSE FUNDS ON SUBPRIME BACKED LOANS
The recent purchasing patterns in Florida’s pension funds serve to identify a sleazy side of the subprime debacle. In the February 2008 Bloomberg Markets David Evans has discussed some horrid behavior in a pension fund that was once an example for the rest of the nation. “On Sept. 30, 2005, 25 percent of the pool was invested in U.S. Treasuries and debt issued by U.S. agencies, the safest and most liquid debt sold… Florida was more aggressive than most states. In October, the Florida pool had the highest return of any public fund in the U.S., earning 5.63 percent.” However, in 2007, something changed and Florida’s fund managers began buying risky, subprime holdings.
Coleman Stipanovich supervised an investment fund for Florida’s school district until he resigned on December 4, 2007 and after school districts in Florida began panicking and pulling money out of his fund. Apparently, in July and August 2007, Stipanovich bought $842 million of mortgage-backed debt with taxpayer money. The securities defaulted within four months.
David Evans uncovered a consistent scheme of purchasing subprime laden debts. “As the subprime crisis unfolded around the world, Stipanovich and [pool manager] Lombardi increased their holdings of high-risk debt. They steadily reduced holdings of government securities in favor of higher-yielding—and riskier—commercial paper. In February 2007, London-based HSBC Holdings Plc, Europe’s largest bank by market value, reported it had losses of $1.8 billion more than expected on its U.S. subprime lending. In the same month, Lombardi bought the $400 million in Countrywide CDs.”
Florida’s funds suffered not only due to a consistent plan of purchasing high risk subprime securities but also from the predatory self-dealing of its managers.
http://www.bloomberg.com/news/marketsmag/mm_0208_story2.html
