Treasurer’s Credo: Safety Above Profit

Compared with the high-flying days before the landmark 1994 bankruptcy, Orange County’s investments are downright boring these days. And that’s just the way Treasurer-Tax Collector John M.W. Moorlach likes it.

In the early 1990s, his predecessor used the county’s bond portfolio as collateral to borrow hundreds of millions of dollars to invest in more bonds. It was a risky and unusual strategy for a public agency and it ended in disaster: Facing losses of $1.6 billion, the county filed for the nation’s largest municipal bankruptcy.

Robert L. Citron resigned, pleaded guilty to criminal charges and was succeeded by Moorlach, an accountant who had warned repeatedly that Citron’s investing strategy was putting the county’s finances at risk.

When it became his job to guide the investment pool, Moorlach immediately placed safety above profit -- picking conservative investments such as money-market funds and certificates of deposit. The county also invests in “commercial paper” -- short-term loans to large companies with top-tier credit ratings, such as Citigroup and General Electric.

Over the 12 months ending Oct. 30, the investment pool earned a net yield of 1.24%, county figures show. Though the pool consistently outperforms a comparison group of money-market funds for government agencies and other institutions -- a group that earned 1.06% over the last year -- it is a fraction of the 11.5% return Citron was earning during a time of generally higher interest rates before his strategy backfired, Moorlach said.

“What we do now is run a money-market fund, completely on the opposite side of the bell curve from my predecessor, who ran a highly leveraged hedge fund,” Moorlach said. “We’re on one side, super-conservative. Citron was on the other, highly speculative.”

Including money from cities, school districts and other public agencies that the county is responsible for investing, Moorlach oversees a portfolio worth more than $5 billion.

In addition to safety, there is another major difference in the fund today: Every investment and the balance of every account is disclosed in a monthly report to county officials and on the treasurer’s website.

Two investment ratings agencies that review the treasurer’s investment pool give it high marks for creditworthiness. Citron did not have the pool rated and did not issue monthly reports about his trades.

“Offering a monthly report and every piece of information you’d want to know is pretty impressive. That is very transparent” and unusual, said Douglas Rivkin, a Moody’s vice president and lead analyst for the rating of the Orange County investment and educational pools.

The day-to-day transactions are handled in a small Santa Ana office, where Moorlach’s assistant investment officer, Paul Cocking, analyzes computerized investment data and pulls off trades that sometimes exceed $100 million.

He arrives at work before 6 a.m. -- often in the dark -- to keep in sync with East Coast markets. He looks for bargains, pinches pennies and searches for an edge.

On a recent weekday morning, Cocking and other traders across the country were hesitant to invest because Federal Reserve Board Chairman Alan Greenspan was expected to raise interest rates one-quarter percent later in the day. That meant Cocking and others could get higher rates if they waited.

By late morning, Cocking agreed to buy $90 million of commercial paper from brokerage UBS. The loan would mature in six days, yielding a profit of $29,250.

“John [Moorlach] does a very good job of stressing safety first, liquidity second and, a very distant third, any kind of return,” Cocking said. The result is that losing money is virtually impossible -- “For us, a bad day is when I didn’t make as much as I could.”

That makes sense, considering the county’s history, Cocking said.

“You have this history of a bankruptcy; that’s humongous. It’s going to be impossible to get past that for a long time,” he said.

Times staff writer Jean O. Pasco contributed to this report.