Newport makes wise investments

June Casagrande

In the late 1990s, conservative investors watched in agony as

high-risk speculators cleaned up on the stock market. But since the

market implosion that began with the dot-com crash, it’s these

cautious investors who’ve enjoyed the last laugh.

Newport Beach, like all cities, must follow strict state

guidelines when it comes to investing cash reserves. Partly as a

result, the city has been able to protect its principal while eking

out small percentage gains.

City finance experts are recommending that council members stay

this course when they review the city’s investment policy on Tuesday.

“We review the policy every year to assure we’re keeping timely

with good investment practices,” said Assistant City Manager Dave

Kiff, who will give a presentation Tuesday on a number of city

policies including investments.

The city has about $117 million invested. Some of this money is in

long-term reserves, cash the city must set aside in case of a costly

emergency, such as a bridge collapse. The city also invests

shorter-term holdings -- money it knows it will need soon, but not so

soon they can’t make a few bucks off it first.

“We follow a very conservative strategy,” explained Dick Kurth of

the city’s Administrative Services department, which oversees the

city’s budget and finances.

The city uses five different investment advisors and puts money

only in bond instruments -- no equities. Further, Newport Beach puts

its residents’ money only in very-short term investments, never

longer than five years.

The result, for the year ending Feb. 29, is that the city beat the

one-to-three-year treasury benchmark of 2.18% in its holdings with

four its five investment advisors: The best-performing holding earned

2.52%, with the other firms bringing in 2.49%, 2.39%, 2.23% and

2.06%. The lowest percentage, Kurth explained, reflects the fact that

the city only recently hired the advisor firm; therefore its holdings

only include recently bought securities that are earning lower rates

than ones bought three, four or five years ago.

As these older holdings mature and roll over into new funds, the

city’s returns will continue to decline, at least for a while.

Kurth said that, while no agency compiles information on different

cities’ investment performance, he believes that Newport Beach has

done slightly better than most California cities.

“We’re all controlled by the same laws, but there’s a little

flexibility in there,” Kurth said. “I don’t think we’re having to go

through some of the dire stuff other cities are going through, but

it’s not a bed of roses, either.”