Strangled by the tentacles of toxic subprime mortgages and structured investment vehicles (SIVs), the Florida Local Government Investment Pool (LGIP) is finding itself unable to pull in deposits from once-burned, twice-shy municipalities.
Florida’s LGIP is used much like a money-market fund by nearly 1,000 school districts, counties and cities in the state Florida. At one time, the fund had $27 billion in assets. Today, the Florida LGIP is down to $5.7 billion after revealing it held billions of dollars worth of below-investment-grade securities. Upon learning that the LGIP had invested in the same kinds of securities responsible for crippling financial institutions and producing $1 trillion of write-downs, investors quickly withdrew more than $13 billion from the fund.
So far, Florida’s LGIP hasn’t lost money. The fund did, however, suspend withdrawals on Nov. 29, 2007, following credit rating downgrades on toxic debt that ultimately reduced its assets by 44%.
The fund also placed a month’s interest in a reserve account in the event of a future cash shortfall. That move eventually caused a number of municipalities to move their money in rapid fire sequence into banks, Treasuries and private municipal funds. As depositors transferred their assets, another pool for local governments – the Florida Surplus Asset Fund Trust – grew 60% to $255 million in a single year.
The Florida LGIP has since brought in new leadership to shore up its financial and PR issues. Under a reorganization plan created by New York-based BlackRock Inc., the Florida LGIP has eliminated two-thirds of its bad debt, replaced managers and increased oversight. Even those actions, however, appear to be having little impact on restoring investor confidence.