FL CFO Orders State Funds to Look into Mortgage-related Risk

November 12, 2007 (PLANSPONSOR.com) - After meeting with senior executives from several Wall Street investment management firms in New York City last week, Florida Chief Financial Officer Alex Sink has called for an in-depth analysis of the state's Treasury investments.

According to a news release, Sink is calling for agencies to assess the amount of risk in the state’s investment portfolios specifically related to mortgage-backed securities as well as other investments which may be affected by the collapse of the subprime mortgage market. 
While investment managers who manage state funds are required to invest in funds with specific credit ratings and other risk criteria, in some cases, high-risk mortgage-backed securities have been repackaged, given a high investment grade rating, and sold to investors, the news release said.  As ratings firms are downgrading the ratings of several mortgage-backed securities previously rated as high as AAA, Sink is seeking to gauge the quality of the state’s investments.
“As the manager of the state Treasury with $20 billion in tax dollars, I want to ensure we are safeguarding the taxpayers’ money,” said Sink, who oversees the Department of Financial Services, in the news release.  “I have ordered a thorough review of the state Treasury’s investments to uncover and identify any previously unknown risk to help us protect Floridians’ tax dollars.”

The CFO also called on the State Board of Administration to review the investments of Florida’s $140 billion pension fund, and prepare to present the findings to the Florida Cabinet’s meeting on November 14, 2007.  She is o encouraging other state entities – including the Florida Hurricane Catastrophe Fund, Florida Citizens Property Insurance Corporation, and the Florida Prepaid College Fund – to review their asset allocations, investment decisions, and risk levels.

According to a news report in the Tallahassee Democrat, State Board of Administration spokesman Mike McCauley said it is too early to say how much of the state’s investments are directly tied to mortgage-backed securities, but early indications are reassuring.