DALLAS - Withdrawals from the state-run investment pool in Texas slowed to a trickle yesterday, and state Treasury officials declared that the run by municipalities on the steadily shrinking fund had ended.
Net withdrawals from TexPool were $38.2 million yesterday, far smaller than the withdrawals last week, when investors were pulling out more than $200 million each day.
"We did normal business today," said Martha Whitehead, the Texas treasurer. "The run's over."
All told, participants in the investment fund removed more than $2.1 billion in a weeklong run triggered by negative publicity and a financial crisis involving the Orange County, Calif., investment pool.
The balance of TexPool stood at $1.47 billion late yesterday, down dramatically from $3.6 billion earlier this month and from about $11 billion earlier this year. The balance comprised $615 million in cash and $852 million in securities.
The apparent end of the run coincides with meetings between Treasury officials and investors around the state.
Whitehead met with investors in Dallas last Thursday and planned meetings in Houston yesterday evening and in San Antonio today to assure investors that the fund is safe and lacks the risky derivatives trading that contributed to fiscal trouble in Orange County.
"As a result of our efforts, TexPool is now virtually a cash fund, with a weighted average maturity of 35 days," Whitehead said. "I believe we have done everything possible to reassure our participants that TexPool is a safe, sound, and secure program."
The run began Dec. 9 when the Wall Street Journal ran a story comparing TexPool to the stricken fund in Orange County. The California municipality sought bankruptcy protection this month after announcing its investment pool suffered huge losses linked to derivatives trading that are now estimated to exceed $2 billion.
The run on the Texas fund lasted about a week, peaking Dec. 12 when net withdrawals for the day were $646 million, despite constant statements that the fund had a different mix of securities than the Orange County fund.
Texas Treasury officials maintained that Orange County's fund put 42% of its portfolio in derivatives, while TexPool had just 2%, or $75 million, which it promptly sold.
To protect TexPool investors, officials said the Texas Treasury bought U.S. Treasury notes and bills from the fund during all of last week.
"In order to make sure there are no losses, the Treasury will purchase these securities from TexPool," said Mike Doyle, deputy state treasurer.
Since Dec. 9, the state treasury sold $2.37 billion of securities to buy TexPool securities, resulting in a loss of $55 million to the treasury. The loss will reduce interest earnings to the general revenue fund for fiscal 1995, the state treasury said, but the amount available for spending by state agencies will not be affected.
"We always felt the cities and towns of Texas could have been the real victims of this run," Whitehead said. "We were faced with two options - take unrealized interest income losses that the state could handle, or cut off funds to local communities and see major disruptions in schools, police and fire protection, and debt service. We are confident we did the right thing."
Doyle said that while some of the fund's 1,370 participants pulled their money from TexPool in the past 10 days. he knew of no cancellations as of last week.
"No one closed," Doyle said on Friday. "The last I heard no one has said, `Cancel my agreement.' They're saying, `l want to see what happens.'"
Treasury officials said some municipalities pulled out their money to finance operating expenses.
"They're paying those bills," said Steve Garven, a spokesman for the state treasurer's office. "Once the tax money comes in, they're going to come back to TexPool."
However, a former Treasury official who used to manage TexPool was concerned about the steady stream of losses.
"I'm worried about the fund," said Linda Patterson, president of the investment advisory firm Patterson & Associates in Austin. "I'm a big supporter of TexPool. I hate to see this happening. I think they're such a good alternative for small- and medium-size entities in Texas."
She said that participants fled TexPool because other municipalities were doing so. "There's just so much pressure for boards and commissions to be careful and not be the last one out," Patterson said.
Susan Anderson, Austin city treasurer, said elected officials in small communities were frightened by the media reports of Orange County and ordered their money removed from TexPool.
"It was panic created in the market," Anderson said.
Municipalities that pull out of TexPool can make their own investments in short-term securities or join other investment pools in the state.
Austin has pulled money out of TexPool, but its treasurer attributed the withdrawal to the availability of better rates elsewhere and not to fear spawned by the run.
"It was more an economic situation than anything else," Anderson said.
The city began removing, its $120 million stake in TexPool last May and put the money in repurchase agreements, commercial paper, and U.S. agency discount notes, she said.
"lt was an economic decision rather than a lack of confidence in TexPool," Anderson said. "It's a good alternative for small governments that don't have a large portfolio like we do. We can go out and buy securities like TexPool does."
The city of Arlington began pulling money out of the fund earlier this year as interest rates climbed. Chuck Springer, Arlington's cash and debt manager, said the city made its last withdrawal Dec. 7, two days before the Wall Street Journal article.
"We had yield concerns beginning back in August and decided to pull some funds out," he said. "We were able to take out funds and invest them in something with a higher rate."
