Pool Analysis Was All Wet

I read your May 9 article (“Everyone Back in the O.C. Pool?”) with great amusement.

I strongly agree with [County CEO] Jan Mittermeier that the county does not belong in the business of managing other people’s money, as I know that there are many qualified institutions who can do as well or better than [Treasurer-Tax Collector John M.W.] Moorlach and his staff--without adding to the county’s liability concerns.

What I really found amusing, however, is that your paper would give so much credibility and emphasis to the return comparisons between the Orange County money-market pool and its “peers,” especially when the source of this data was the county’s treasurer-tax collector’s office.

Being as most of these money-market funds are what are commonly known as “retail” funds, the expense ratios on these funds are typically upward to 50 basis points (one-half of 1%) or more.

Yet because the treasurer lobbied to take over control of the county pool to save the county money relative to the 5 basis points (1/20th of 1%) that Salomon Bros. was charging to manage this pool, I can only assume that the expense ratio on the county pool is currently some figure which is less than 5 basis points.

It doesn’t look to me like we are comparing apples to apples.

Therefore, I took the figures from your article and added back the expense ratios for each fund in order to “gross up” these returns.

This then allows us to compare the effective management of those people who are handling each individual fund, exclusive of their fee structure.

The revised order of your table based upon “gross” returns for the benefit of your readers then becomes Janus, Federated, Dreyfus, Provident, Orange County and Fidelity.

Should the opportunity present itself for local cities and agencies to consider the county as an investment option, I’m sure that most competent treasurers will compare the Orange County pool with “institutional” money-market funds, which typically charge an expense ratio in the 10- to 20-basis-point range.

These funds should offer a more politically comfortable alternative to these cities in addition to the potential for equal or superior investment returns.

GARY A. PULFORD

Chairman

Costa Mesa

Treasury Oversight Committee