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What’s the State of Florida Investing in These Days?

Florida investment managers were urged Tuesday to look at Florida real estate opportunities as the state tries to rebuild its retirement investment fund.

Meeting for a periodic update on the state’s investment finances, Gov. Charlie Crist, as head of the State Board of Administration, told fund managers that Florida’s recent real estate bust could be a boom for the state’s pension fund. With residential and commercial markets in the doldrums, Crist said there was never time a better time to invest locally.

"What's the saying, 'Buy low and sell high?' " Crist told SBA executive director Ash Williams at a quarterly meeting set up to review state investments.

Williams responded that the history of targeting state assets has been a mixed bag but promised to return with more information when the group meets again, likely in December.

Crist comments came as state investment managers briefed the panel –which also included Chief Financial Officer Alex Sink and Attorney General Bill McCollum -- on the state’s investment portfolio and hurricane fund.

On the retirement front, Florida’s portfolio fell 19 percent to $99.6 billion for the fiscal year ending June 30. It has since climbed to $106 billion, nearly $16 billion more than the balance on March 31. The fund is now at 93 percent of full funding, a level of coverage that greatly surpasses most other big states. California’s pension fund, is about 60 percent funded.

“The fact that we’re over 90 percent is outright extraordinary,” said Robert Gidel, a member of the state investment advisory panel.

Over the past 15 years, the pension fund has returned about 7.4 percent annually. Losses experienced in the past year, however, have wiped out much of that gain with the most recent 10-year return now about 2.3 percent. During the calendar year ending June 30, the fund fell 19 percent.

Sink, a former bank executive, said the poor performance over the past 10 years should prompt SBA officials to take a closer look at its outside fund managers. But Williams urged panelists to take a longer view, saying the unprecedented downturn of the past 12 months should not be used as a barometer of outside managers’ effectiveness, reminding them that Florida’s retirement portfolio is highly rated.

“The investment discipline works and we think it’s the right place for us to be,” Williams said.

Florida’s hurricane fund remains about $7 billion short of its $23 billion statutory obligation to cover the state in the event of a disastrous storm. The fund has seen the gap between capacity and risk close by $11 billion since the first of the year.

The gap has been reduced primarily through the decision of insurers to seek private re-insurance and the Legislature’s decision to cut the state’s liability by $2 billion.

“We’re in a lot better position marketwise than what we had anticipated earlier,” said Jack Nicholson, COO of the Florida Hurricane Catastrophe Fund.

Among the state’s seemingly poor investment decisions is a paper $250 million loss in connection with a 2007 decision to buy a stake in the Peter Cooper Village and Stuyvesant Town, luxury residential property in New York City. The state still owns its interest in the 80-acre development, which it bought at the peak of the most recent real estate boom. Sink said the state may be holding on to the investment for quite some time.

Williams, who was not in charge when the investment was made, said proper procedures were followed when the decision was made. “With any investment you’re going to have a buyer and seller,” Williams said. “Each thinks they’re right.”

Given the benefit of hindsight, Williams acknowledged that red flags were apparent including the sale price and amount of borrowed money used to secure the purchase.

1 Responses »

  1. Governor Crist's brainstorm about investing pension funds in Florida real estate is one of the most dangerous ideas I've heard him or any other governor suggest. For one thing, the duty of pension fund managers, like doctors, is "first, do no harm." That means controlling risk. Secondly: If Florida schools had been teaching Florida history to pups like Charlie Crist, he might already know that the whole history of real estate in the Sunshine State is just a series of boom & bust cycles -in other words, it's a risky field. Finally, if this mediocre-lawyer turned politician had any investing experience, he'd know that timing cyclical markets is a sucker's bet - certainly not something for risk-averse portfolios like pension funds.

    Please, keep this governor's hands off the controls of state government until we can get rid of him, even if that means sending him up to Washington where he may do less damage as one out of a hundred U.S. Senators, and in the minority party at that. Meanwhile, the state's investment managers should continue to politely tune out the Governor's wacky monologues. Just be professionals, ignore Governor Sunbeam, and do what's right, guys.