Assured Return Management Corp., a new investment management firm, is offering municipal bond issuers another option for investing medium-term to long-term escrowed bond proceeds, a Lehman Brothers official said yesterday.
Through investment agreements similar to guaranteed investment contracts, the company will invest clients' funds in high-quality taxable securities, while guaranteeing investors a specific rate of return, added Gary M. Killian, a senior vice president at Lehman Brothers. Lehman will serve as adviser to the new firm.
Under current capitalization, the company can maintain contracts for up to a $2 billion principal amount of outstanding client investments. Its investment agreements have been rated AAA by Standard & Poor's Corp.
The investment agreements have been assigned an Aaa counterparty rating by Moody's Investors Service. Designed to allow issuers the ability to invest escrowed bond proceeds according to cash-flow needs, the agreements use a choice of fixed-rate and variable-rate taxable securities.
Recent events, such as the Steven D. Wymer case last year, where an investment management firm defrauded municipalities out of about $100 million of funds, have sent some issuers searching for reputable firms to invest bond proceeds and other funds until they are needed.
While problems with guaranteed investment contracts backed by some companies, such as the failed California insurer, Executive Life Insurance Co., have made some issuers wary of putting funds into GICs, Assured Return Management sees opportunities in the area, Mr. Killian noted.
"The market is calling for more competition, and there is a need for more AAA-rated contract providers," Mr. Killian said, explaining the impetus for the start-up of the new firm.
Lehman Commercial Paper Inc., a unit of Lehman Brothers, will be the collateral manager for the new company, investing client funds and providing investment management services. Lehman Special Securities Inc., another unit, will be the referral agent, acting as a liaison between the company and its clients, and responsible for negotiating the investment agreements.
The company feels its investment agreements differ from traditional GICs offered by insurance companies, such as the failed Executive Life, in several ways, Mr. Killian said.
Often, a traditional GIC provider invests an issuer's funds in a variety of low-rated or unrated vehicles such as junk bonds and real estate, which can carry a high degree of risk.
But Assured Return Management, Mr. Killian said, will invest in taxable securities rate at least double-A by Standard & Poor's and Moody's. The company also can invest short-term securities rate A1-plus by Standard & Poor's and P-1 by Moody's, he said. In addition to the company's collateral and capital base, a standby liquidity facility covers client investments, Mr. Killian added.
The value of Assured Return Management's collateral, capital base, and liquidity facility is assessed on a daily basis. Clients are assured investment coverage.