The waiting game

Financial advisory firms like Public Financial Management are advising their clients not to borrow money right now because of the “frozen” capital markets.

“People are not borrowing. There is not a lot of cash out there to lend,” said Brad Remig, managing director of PFM.

Remig, who serves as project manager to over 50 school districts, authorities, municipalities and counties, advising them on issues related to new money capital financing, existing debt refinancings and debt restructurings, said the whole economy depends on the capital market and access to loans.

Without that, it creates a whole ripple effect through the entire economy. Central Pennsylvania has not felt much of the impact so far, he said, mainly because it is so well insulated with jobs.

Frank Leber and Paul Lundeen at Rhoads & Sinon LLP, Harrisburg, differed a bit in saying that there are still bank loans occurring in the region right now. However, the larger transactions — $20 to $25 million — are being postponed in many cases, unless there is an immediate capital requirement.

“Depending upon the size, approach and structuring, there are deals getting done,” Leber said. “The market has not stopped cold.”

Leber and Lundeen work primarily as municipal finance lawyers, or bond counsel. They do not give investment advice.

“Most financial advisors would say to hold off and let the market settle down,” Leber said.

Most clients have been taking harder looks at variable rate financing as well — more so now than maybe a year or two ago, they said.

“It’s only been in the last eight to 10 years that we’ve seen an increase in variable,” Lundeen said.

The fixed rate may be marginally higher, but there is no risk and there is value in that now, he explained.

“If you are a sewer authority or municipality, you know exactly how much you are going to be paying,” he added.

That’s exactly what Cumberland County is doing with its bonds, according to Dana Best, director of finance.

“We’re watching. We’re looking at things that could impact us,” she said. “We still have to use due diligence and watch and look.”

The county is no exception to increased expenses, especially retirement, as we move into 2009, she said.

Forum on financial crisis scheduled

Dickinson College alumni working in leadership positions in the financial industry will participate in a forum on the ongoing banking and credit crisis at noon Monday in the Great Room of the college’s Stern Center on West Louther Street.

The event is free and open to the public.

Invited guests include Michele Richardson (Class of 1985), managing director of Babson Capital Management; Brian Ruszczyk (Class of 1988), managing director of Latin America Investments at Citi Private Bank; and Craig Weeks (Class of 1977), managing director of Global Trade Services, JPMorgan.

Hance West of Investure, Dickinson College’s investment office, will also participate.

The panelists will field audience questions via teleconference.

Beneficiaries challenge PSERS investment

Last week, several state pension fund beneficiaries voiced concerns to the Pennsylvania Public School Employees’ Retirement System (PSERS) board of trustees about its involvement with a private equity fund that has lost millions of pension dollars.

“We’ve worked too hard for PSERS to make bad investment decisions. PSERS needs to do their job in protecting our retirement,” said Linda Roberts, an elementary custodian from New Kensington.

PSERS, which manages $64 billion overall, is just one of several pension funds in the United States, Canada and Europe invested with Lazard Frères Strategic Realty Investors Fund II, which has consistently underperformed and lost millions since its inception in 1998, according to the Service Employees International Union.

“PSERS is not gambling with the Public School Employees’ Retirement Fund,” said PSERS Executive Director Jeffrey Clay, calling the SEIO assertions “misleading.”

PSERS investments are based exclusively on the best interests of the members of the system and not on the separate goals or agendas of special interest groups, he explained.

Participants in a defined benefit pension plan, such as PSERS, are not affected by the ups and downs of the markets, Clay added.

“We want to assure our members that their money is safe,” he said. “PSERS invested as one of many limited partners in a partnership that in turn invested in a variety of companies, including Atria Senior Living (Atria), which represents less than two-tenths of one percent of the value of PSERS’ total assets. The investment is profitable, and pensions are secure.”

State reponse

Pennsylvania Treasurer Robin Wiessman said in an e-mail Tuesday that the state’s investment staff is continuously monitoring the financial markets and was well equipped to address the Lehman Brothers bankruptcy, Merrill Lynch sale, AIG bailout and the recent acquisition of Wachovia’s banking operations.

“Proactive steps are constantly being taken to minimize exposure to potential market threats,” Wiessman said.

The state’s roughly $19 billion portfolio, as of Monday, reported the following holdings:

• Lehman Brothers - less than 0.05 percent, or $3 million.

• AIG - none.

• Goldman Sachs Group - 0.21 percent, or $41 million.

• Merrill Lynch - 0.03 percent, or $6 million.

• Morgan Stanley - 0.02 percent, or $3 million.

• Wachovia - 0.02 percent, or $3.3 million.

• Washington Mutual - less than one one-hundredth of one percent, or $200,000.

• Bear Stearns - less than one one-hundredth of one percent, or $200,000.

The state said it is conducting the necessary investment research and market analysis to safeguard the assets of Pennsylvania stakeholders.

“Having worked in the financial industry for many years, I know first-hand that there is no way to know for certain where the markets are headed, but I am confident we are doing all we can to safeguard our assets here in Pennsylvania and to contribute to rescue efforts on the national level,” Wiessman said.