83 million problems shackle King County's neck
April 26, 2008 · Updated 4:59 AM
By REAGAN DUNN, King County Council member
Created in May 1990, the King County Investment Pool is a tool that lets county agencies and taxing districts like school, fire, water and sewer districts invest their reserves in a fund with tremendous purchasing power.
Combining these dollars allows for eased administrative costs, improved economies of scale, increased staff efficiency and shared financial risk. Shared risk allows small districts to better weather short-term financial crises and other market gyrations.
However, the King County Investment Pool has a problem. It actually has 83 million problems. That is the amount of money the investment pool could lose on four major investments. With the economy faltering toward a possible recession and gripped by a spreading sub-prime mortgage crisis, the investment pools members are getting anxious.
Traditionally, the King County Investment Pool puts its dollars in low-risk instruments like government and corporate bonds, and real estate funds. From an initial starting point of $825 million under management in 1995, the pool has modestly grown to more than $4.3 billion in 2007, primarily through additional members.
Due to the sub-prime mortgage crisis, traditionally safe real estate investments began to fail and spread woe throughout the financial industry. Now, four investments in mortgage holding companies or commercial paper have gone bankrupt. These failed investments make up 5 percent of the pools total portfolio. The loss could be as much as $83 million.
Seeing the erosion in their bottom lines, some members are questioning the cost of King Countys annual administrative fee and sensing they could do better if they went their separate ways. Some perceive the annual .00015 percent administrative fee that King County charges as a profit being made off their fellow investors. To ensure this isnt the case, I think it is time for the investment pool to re-examine whether these administrative fees are in line with other jurisdictions that manage pooled investments.
I would urge caution, however, as smaller districts who wish to go it alone assess their options. They should recall that the King County Investment Pool has traditionally held an excellent rating by financial rating agencies. The sub-prime mortgage mess has impacted numerous funds across the country, not just here and the investment pool has already isolated the underperforming, risky investments to ensure that the damage is contained. Additionally, splitting up the investment pool may put the rest of the members at added risk, not to mention reducing the purchasing power of all agencies involved.
Because we are entrusted with public money on behalf of the people, I urge the money managers to do a better job of communicating investment risks to those who are affected. Re-examining and lowering our administrative fees could mean that our schools, hospitals and fire districts see their costs go down at a time when they could use the break.
Reagan Dunn represents District 9 on the King County Council. E-mail: