DALLAS -- Amid concerns about derivatives losses, the Texas auditor's office is expected to complete an investigation of investment practices at state-funded agencies and schools for higher education in a few weeks, a state official said yesterday.
Wardaleen Belvin, the chief of staff for Lieut. Gov. Bob Bullock, said she expects that a report should be finished next month and include information on state agencies and schools that invested in derivative products, disclosure policies, and other items.
The investigation into investment practices was prompted by the millions of dollars in trading losses and the plunging value of the securities portfolio at Odessa Junior College in Texas, which invested $22 million -- or almost all its cash reserves -- in high-risk, mortgage-backed derivative products.
While Belvin said she believes the extent of the college's investment in derivatives is unusual, she said that several other state-funded colleges and agencies have purchased the high-risk products. They include about six other junior colleges and the Texas Treasury, which has been criticized for putting millions of dollars into derivative products.
Belvin said Bullock and other state leaders plan to complete legislation to tighten investment policies and disclosure requirements at state-funded schools and agencies after reviewing the auditor's report.
The bill would then be introduced when the Texas legislature convenes in January.
"We are not trying to outlaw the use of derivatives, but people need to be prudent in their investment practices," Belvin said.
Among legal provisions that may be considered are: regulating the mix of investments, detailing disclosure requirements, and requiring accounting reports. Some type of oversight commission could be considered.
Belvin said the state wants to help insure that its agencies and colleges and universities make wise investments and do not jeopardize themselves financially.
So far, Belvin said, the survey has not indicated that even as few as 10% to 20% of the state-funded colleges and universities and agencies have purchased high-risk derivatives.