Federated to Manage Investment Pool

The pool had been managed by the State Board of Administration when it was rocked by a run after mortgage-related securities it held were downgraded. The fund takes cash from cities, school boards and other local governments and invests it in a way similar to a money market account.

The run that drained more than half the investments shut down the pool temporarily, but some confidence was restored under the interim management of outside investment firm BlackRock Investors Inc. BlackRock was one of three firms seeking to be the permanent manager, but lost out to Federated, the lowest bidder.

Pittsburgh-based Federated, one of the largest investment managers in the country with more than $300 billion in assets, manages about 150 mutual funds and other accounts and is in the Standard & Poor's 500.

The state board's trustees Gov. Charlie Crist, state Chief Financial Officer Alex Sink and Attorney General Bill McCollum approved the decision to hire Federated permanently. Still, Sink wants her office to review the contract carefully before signing off on the final decision.

In a statement, the trustees said Federated Investors' 53 years record in investment management and its customer service capability "will be a benefit to Florida's local leaders seeking a conservatively-managed investment fund."

Federated officials had no immediate comment on the decision.

In addition to BlackRock, the other finalist was Bank of New York Mellon Corp.

In a statement, BlackRock said it was proud of the work it did to restore confidence in the fund after several local governments pulled out in November. While some are still skittish, many governments have slowly regained confidence in the pool and are starting to put money back in.

"We are equally proud of the work we did in the past 60 days, developing and implementing a creative solution, stabilizing the troubled portfolio, creating additional liquidity, and restoring calm in a difficult environment," the BlackRock statement said.

BlackRock split the reopened pool into two funds. One fund remained open to local governments, but the other, containing the worrisome mortgage-related securities that led to the run, was closed off.

Before the run, the pool had about $25 billion in investments. On Tuesday, the open part of the pool had just under $8.9 billion in assets, and SBA interim director Bob Milligan said the fund has stabilized, with local governments putting more money into the pool on most days than they are taking out.

"We've had positive cash flows, as the rule rather than the exception," said Milligan. "We continue to improve liquidity. All in all, things have settled down."

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