SANTA ANA, Calif. - Trustees for the $2.5 billion Orange County Employees' Retirement System have discovered that $65 million in fund assets is more deeply entangled in the Orange County bankruptcy mess than originally thought.
Terry Slattery, fund investment officer, said pension fund officials had been led to believe the $65 million - proceeds from a pension obligation bond sale - was separately managed by Orange County Treasurer Robert Citron.
But Mary-Jean Hackwood, chief executive officer, told pension fund trustees that Orange County officials are now saying the pension obligation money was commingled with other investments in the pool now under bankruptcy protection. She said county officials told her only the accounting for that money was separate.
The $65 million in the pool was part of $318 million in pension obligation money the county had raised in September to pay off the unfunded liability of the fund. The $65 million, the only part of the $318 million not invested, was being parked temporarily with the treasurer until it could be drawn down by the pension fund's real estate managers.
Mr. Slattery said the revelation meant it will be more difficult for the pension fund to obtain the money quickly with no loss in value.
Pension fund officials claim the pension obligation money is separate from the pooled fund and shouldn't be part of the bankruptcy action. That pool has lost an estimated 27% of its value.
Officials contend the pension obligation money should be returned to the pension fund because it was a separate account, not part of the treasurer's pool and the pension fund isn't a creditor.
Ms. Hackwood has called several special meetings and pension officials have met for hours in closed session to discuss its legal strategy. Officials also hired a Los Angeles law firm - Katz, Hoyt, Seigel & Kapor - for potential bankruptcy litigation.
Besides the pension obligation money, the pension fund has $59 million in short-term money and $7 million in operating money in the treasurer's pool.
Mr. Slattery said losses are probable in both accounts.
The Orange County bankruptcy action has frightened investors elsewhere.
Participants in the San Diego County investment fund continue to meet with the county treasurer's office following an unrealized loss so far this year of $358 million, or more than 10%. San Diego Treasurer-Tax Collector Paul Boland said all new money invested in that fund is being invested "short term" for now.
The fund's investments include structured notes or derivatives with interest-rate-sensitive coupons. However, Mr. Boland said five-year Treasury notes have declined 10% this year, and his fund has done about the same.
Referring to the unrealized loss in the San Diego fund, Mr. Boland said: "This is not at all the same as the Orange County situation, and we have the capability to take care of our liquidity and ride this out."
Mr. Boland said the investment fund did include some money from the San Diego County Employees' Retirement System, but he didn't know the amount.
The City Council of Auburn, Maine, is developing guidelines to avert future losses like the $6.5 million unrealized loss the city's $16.5 million investment pool has taken this year.
"We are going to be appointing an investment committee," said Pat Finnigan, acting city manager. "We didn't have controls and an investment policy to guide the council."
The Auburn investment pool contained Treasury STRIPS, a synthetic investment, and collateralized mortgage obligation bonds.
She said the city has become "caught up in the Orange County situation," but Auburn didn't leverage its investments like Orange County. The City Council also is looking into the circumstances by which the city investment pool obtained the securities.
The unrealized loss, she said, will "certainly reduce" the city's flexibility in budgeting next year and could affect capital improvement projects.
Investors in the TexPool government fund, a state-managed investment fund for Texas municipalities, pulled $1.5 billion, or about 60% of assets, out of the fund in a one-week period, according to Texas state treasury officials in Austin. But a spokesman for the fund said the run has stopped.
The run began Dec. 9, he said, when a published report erroneously likened the investments in the $1.4 billion fund to the investments in the Orange County investment fund.
A spokesman for TexPool said the fund had only 2% of its investments in derivatives and the derivatives have since been sold.
Published reports that the San Bernardino County investment fund has suffered a severe loss were "totally erroneous" and "irresponsible," said Tom O'Donnell, the county treasurer tax-collector.
Although he said the county investment fund sustained a 4.5% unrealized loss through the end of November, he added: "I don't think there is a portfolio in the country which has not (suffered a loss in market value)."
He said an analyst with the Fitch Investors Service Inc., New York, recently visited the fund and called it "very safe." He said the fund has a 30% position in repurchase agreements.
The $8 billion Florida State Treasury investment portfolio has sustained a $200 million decline on its $8 billion in assets. However, Bruce Gillander, bureau chief in the bank treasury division, said the loss is only temporary and will have no impact.
About $832 million is invested by outside managers in CMOs, said Mr. Gillander. CMOs, he said, pay higher returns than do Treasuries during the "good times."