DALLAS -- Texas municipalities pulled more than $1.6 billion out of the state's municipal investment pool this week as officials sought to reassure investors and calm fears to prevent further losses.
The state treasurer's office released figures showing that investors yesterday withdrew an estimated net of $271 million out of the fund, called TexPool, and took out $448 million on Tuesday. That followed a withdrawal of $646 million Monday and a $326 million run on Friday.
"The numbers are dropping. Obviously the message is getting across this thing is sound," said Mike Doyle, deputy state treasurer of Texas. "I think we've seen the end" of the withdrawals.
The steady pullout by municipalities investing in the fund followed a newspaper report that made unsettling comparisons between TexPool and a fund that forced Orange County, Calif., to file for Chapter 9 bankruptcy.
Last week, Orange County filed bankruptcy petitions both for itself and the county's investment pool. Pool losses have been put at $2.02 billion and are expected to rise as the pool is liquidated.
Local treasurers nationwide have been trying to reassure investors and taxpayers left jittery by the news of Orange County's fiscal problems.
Texas officials blame tensions in their state, in part, to an article last Friday in the Wall Street Journal that said TexPool faced some of the same risks as Orange County.
Texas officials, however, point out that the Orange County fund had 42% of its money in derivatives. TexPool, on the other hand, had only 2% of its portfolio invested in derivatives and has since sold all its derivatives holdings, according to Steve Garven, a spokesman for the treasurer's office.
"We have absolutely none," Garven said. "Participants have not lost a single dime."
TexPool, a state-run fund formed in 1989, has more than 1,300 participants, including school districts, cities, counties, and utility districts.
To stem the exodus from TexPool, state officials have been contacting participants by telephone and facsimile machine.
"We're in the process of reassuring our participants right now," Garven said. Officials want "to calm the fear out there and to reassure our participants the fund is safe."
Asked whether he thought the withdrawals from the fund would continue, Garven replied, "We hope not."
Linda Patterson, a former state Treasury official who used to manage TexPool and now serves as president of Patterson and Associates in Austin, predicted the tide of losses will moderate.
"I think it's going to slow a little bit," Patterson said. "There was that immediate panic.
"There's still quite a bit of nervousness," she added, "and they're going to have to prove themselves again."
Martha Whitehead, the Texas treasurer, narrowly won re-election in November on a platform to abolish the state treasurer's office, which runs TexPool. Patterson said the proposal contributed to investor anxiety.
"They don't know who's going to be running the pool," Patterson said. "There's just a lot of questions that have never been answered about the whole abolishment."
While participants of the fund may be nervous, Patterson said the problems are not as severe as those faced by Orange County. TexPool does not leverage its investments as the California fund did.
She said the derivatives in TexPool were of a short-term nature, while Orange County's were longer-term, and riskier investments.
"TexPool has always been run as a more liquid pool," she said. "Orange County seemed to forget that."
Patterson is now managing a competitive, private investment pool for Southwest Securities in Dallas valued at $271 million. She said she thinks the fund, as well as others set up in Texas, will grow as participants of TexPool flee.
"A lot of people have been calling and getting information," Patterson said. "I think there will be a bigger pickup [in business] in the next month or so."