Florida State Board of Administration, Tallahassee, hired Stone Tower Capital to run $1.4 billion in distressed fixed-income securities, said John Kuczwanski, FSBA communications manager.
The hiring is pending contract negotiations.
Of the total, $739 million is in the Florida Retirement System’s $129.7 billion defined benefit plan, $550 million in the $7.3 billion Florida Prime local government short-term pooled fund and $115 million in other non-pension funds that FSBA oversees. In all, the FSBA oversees $158.9 billion in assets.
Federated Investment Counseling, the sole manager of the Florida Prime, managed the $550 million portion, valued at cost, in the Florida Prime Fund B; the FSBA internally managed the rest of the distressed securities in the other funds.
The securities are legacy structured investment vehicles that were rated AAA and became impaired or subject to potential losses as a result of the financial market crisis.
Prime Fund B has an estimated $266 million unrealized loss in the securities, according to a report to the FSBA by Hewitt EnnisKnupp, an FSBA investment consultant. The other FSBA funds have an estimated unrealized loss of $334 million in the securities.
The hiring is the result of an invitation-only search begun last year. Wilshire Associates assisted in the search.
Stone Tower was selected because it specializes in dealing with the distressed securities, Kevin SigRist, FSBA deputy executive director, said Wednesday at a joint meeting of the FSBA Investment Advisory Council and the Florida Prime’s Participant Local Government Advisory Council.
FSBA expects to pay Stone Tower a slightly higher basis-point fee than Federated, which continues to manage the other $6.8 billion in the Florida Prime fund, Mr. SigRist said. It will be no more than five basis points higher, Mr. Kuczwanski said.
With the new manager, the FSBA is seeking to maximize the value of the distressed assets, while developing and implementing a workout plan for liquidation. The liquidation could take several years, Mr. SigRist said.