Managers of Maryland?s $2.3 billion investment pool have reassured the local governments, school board and agencies that by keeping their cash in the fund, they face little of the risk that led to a $12 billion run by municipalities on a similar pool in Florida.
The rapid withdrawals from the $27 billion Florida investment pool last week were caused by fears of municipal managers that they wouldn?t get their money back after losses in investments backed by subprime mortgages and other commercial paper.
“We?ve been on top of this,” said Mary Christine Jackman, director of investments for the Maryland treasurer?s office. A Nov. 30 letter to the municipalities, counties, volunteer fire companies and others investing in the fund emphasized that PNC Institutional Investments “managed the Maryland Local Government Investment Pool in a conservative manner, emphasizing the highest credit standards and risk management.”
The local entities, including libraries and community colleges, use the pool like a money market fund to get a higher rate of return on funds from taxes and other sources before they are spent. This year the pool was yielding more than 5 percent, but that is down to 4.5 percent as interest rates have fallen.
Deputy State Treasurer Howard Friedlander said the fund “is operated very, very conservatively” by the same managers who did the job at the former Mercantile Trust, known for its aversion to risk.
More than half the fund ? 55 percent ? is invested in U.S. government obligations, and under state law, only 10 percent of the fund can be commercial paper backed by items such as credit card receivables. That percentage is now down to 4.6 percent of the fund, according to the letter from Mark McGlone, head of taxable fined income of PNC Investments.
McGlone said the pool has never put its money in structured investment vehicles or commercial paper exclusively backed by mortgages or mortgage-backed securities.
McGlone and Friedlander emphasized that in September, Standard and Poor kept Maryland?s fund at the highest AAA rating, after the mortgage turmoil had hit the credit market.
“We?ve been increasing liquidity,” with 20 percent of the Maryland pool now held in cash, McGlone said. He said there have been no unusual withdrawals from the fund.
