Florida Hurricane, Pension Funds Boosted by Market Upswing

Florida’s public employee pension and hurricane catastrophe funds are benefiting from an upswing in the financial markets, state investment managers said earlier this week.

The State Board of Administration received that bit of good news at the first of the new, in-depth quarterly meetings it ordered after the recession and some risky deals that went bad slashed the values of state investments the panel oversees.

“All in all, it sounds like Florida is in a lot better shape than a lot of other places,” said Gov. Charlie Crist, who chairs the three-member board. “What we’ve heard today is pretty encouraging.”

The retirement fund, which covers teachers and state and local government employees, represents the biggest part of the state’s investment portfolio. It bottomed out at $83 billion in March but is now up to $106.5 billion, said the board’s executive director, Ash Williams. That’s a big improvement but still about $20 billion short of where it was in mid-2008.

Williams said the fund has at least 93 percent of what it needs to fully cover everyone entitled to a pension. That’s down from 107 percent in July 2008, but Williams said it’s still better than most other states with 60 percent being fairly typical.

The hurricane “cat fund,” which provides backup coverage for insurance companies, has seen its borrowing power improve from an estimated $3 billion last October to $8 billion in May. Insurers also are relying less on the state fund and turning more to the private marketplace for backup. As a result, the state sold only $4.4 billion of an authorized $10 billion in backup coverage.

“That’s pretty good news about reducing the people’s exposure to the impact of a big hurricane,” said Chief Financial Officer Alex Sink, another board member.

The fund offers $16 billion in backup, which can be tapped only after insurers cover the first $7.2 billion in losses, for protection totaling $23 billion.

Attorney General Bill McCollum rounds out the board that normally convenes briefly when all three members are together for Cabinet meetings.

Sink, a Democrat running for governor next year, made a motion in May to begin holding longer quarterly meetings with advisers, consultants, auditors and other staffers besides Williams, who usually appears alone at Cabinet meetings. Crist, now a Republican U.S. Senate candidate, and McCollum, a Republican also running for governor, quickly agreed.

Florida’s pension fund is one of the nation’s largest and “deserves more than five or 10 minutes every two weeks at the end of another long and prolonged Cabinet meeting,” Sink said Tuesday. “It’s important for a board member always to hear unfiltered feedback from independent people.”

The panel took more than three hours to hear reports and ask questions on an array of topics including the pension fund’s ill-fated investment in Peter Cooper Village and Stuyvesant Town, a residential complex in New York City. The state put $250 million into a partnership with other major investors to purchase the Manhattan complex in 2006.

The state’s investment now is valued at zero. That’s due to a sharp decline in real estate values and other factors, said Williams, who had then predicted the buyers might regret the deal.

Williams, though, was working on Wall Street and did not take his state job until last year.

Florida may have lost on that deal but has the assets to now pick up some real estate bargains.

“The very same misery that befell us on Peter Cooper, we will capitalize on in other projects,” Williams said.

Board members suggested Williams could do that by investing in Florida real estate.

“I can’t remember a time in my life, not that I’m the oldest guy in the world, but a time in my life when Florida real estate has been such a deal,” Crist said.

Williams noted other states have had a mixed record on such parochial investments, but after Sink and McCollum echoed Crist, he told the panel: “Message received.”