FL Investment Probe Widened to Include Pension Program

December 17, 2007 (PLANSPONSOR.com) - Stung by the controversy over problems in their troubled local-government investment fund, State of Florida officials have now widened their investment fund probe to include the Sunshine State's public pension program.

The Orlando Sentinel reported that Florida Department of Management Services Secretary Linda South instructed auditors reviewing the state-run Local Government Investment Pool to include the $137 billion pension fund. The fund also bought some of the same downgraded mortgage-backed securities that were the focus of the investment pool’s problems.

“I would ask that you also try to look at the gorilla,” she told the State Board of Administration’s (SBA) audit committee, the Sentinel reported.

The SBA disclosed that the Florida Retirement System had $756 million invested in securities issued by six mortgage-backed lenders that had been downgraded below purchasing guidelines. That represents about half of 1% of the total pension fund.

South, whose department has responsibility for state personnel and pension payments, said officials were obligated to make sure there was no wider problem affecting the pension system.

“I have no concerns or information that there is a liquidity issue, but I’m not allowed to rely on how I feel. I need to know,” she said, according to the newspaper. “I’m not interested in a witch hunt, and I’m not expecting to find anything that causes us embarrassment or concern.”

The SBA audit committee, which is conducting the probe, was asked by Chief Financial Officer Alex Sink to determine what happened in the battered investment pool, according to the newspaper. Withdrawals by nervous local governments, concerned about the down-rated investments, dropped the pool balance from $27 billion on November 1 to about $12 billion following a temporary freeze (See Florida OKs Local Govt. Pool Restructuring ).

According to the newspaper, Governor Charlie Crist’s chief inspector general, Melinda Miguel, summed up the task as, “Who knew what, when, and when was it reported?”