Administration January 10, 2008

Three MA Pension Programs Flee Subprime Exposure

January 9, 2008 (PLANSPONSOR.com) - Three Massachusetts pension funds have moved money from a State Street cash account with past exposure to subprime mortgage investments to a fund with holdings only in government-backed securities.

Reported by

Fred Schneyer

The Boston Globe said officials of the retirement systems of Middlesex County, the Massachusetts Water Resources Authority, and the city of Woburn have moved money out of State Street’s Short Term Investment Fund (STIF) run by its Global Advisors unit, because of its past exposure to subprime mortgage investments.

The Globe reported Thomas Gibson, chairman of the Middlesex retirement board, said it moved $32.5 million last month, as did two other agencies where Gibson is outside counsel: the water authority, which moved about $150,000, and the Woburn pension system.Maureen T. Marcucci, Woburn retirement administrator, told the Globe its board voted last month to move money left over after trades by its managers – about $1 million on an average day – from the short-term fund to State Street’s government account.

Aware of current upheaval in Florida over similar issues (See Florida OKs Local Govt. Pool Restructuring ), Middlesex’s pension board “said, in effect, why take any risk, as small as it may be,” according to Gibson, in explaining his decision to vote for the transfer along with four other board members.“We wanted to stay as removed from that as we can,” Marcucci said, referring to the Florida situation.

State Street of Boston has taken steps to address problems at its Global Advisors division. Its top executive left last week as State Street set aside $618 million to pay for legal issues and other costs tied to problems in Global Advisors bond funds with mortgage-backed holdings (See State Street Names New SSgA Chief, Takes $279M Reserve ).

A State Street spokeswoman, Hannah Grove, told the Globe “there have been no unusual inflows or outflows” in the past six months from the STIF or the government-only fund and that pension programs, including the three funds that moved money, have not raised the issue with the financial services firm.

“We haven’t had any expressions of concern from our clients and these continue to be popular vehicles,” she told the newspaper.