The county investment pool which lost approximately $150 million in September because of its holdings in now-bankrupt Lehman Brothers is currently sound and most securities have high credit ratings, according to a recently released analysis.
The evaluation by PFM Asset Management found the $2.6 billion fund used by governments, school districts and special agencies relatively solid and deemed the policy governing purchases and sales equally sound.
A second consultant will use this report to formulate actual recommendations of how to make the investment policy even better, said Mark Church, president of the Board of Supervisors and a member of the Finance and Operations Subcommittee.
Following the Lehman bankruptcy, the subcommittee suggested the county change the policy to limit how much money is allocated to any one investment and hire an outside party to help monitor its portfolio.
On Wednesday, the committee heard from the hired consultant that the policy is sound but could benefit from tweaks including lowering the maximum mature period for individual securities and barring the purchase of mutual funds or private-issue mortgage-backed securities.
Treasurer Lee Buffington, who manages the investment fund, countered the policy benefits from the flexibility of not having too many specific requirements.
The report is good news, Church said, although it is only one step in the process.
Among the ideas Church wants considered is outsourcing management of the fund. Buffington’s office currently oversees it but, at $2.6 billion, Church said the portfolio is too complex to be managed in-house.
"The report says we’re doing well but we might be realizing even greater returns if we hire a firm with the expertise and time,” Church said.
The County Investment Fund involves 1,050 different accounts with some cities and districts having more than one fund invested. The fund had 5.9 percent of its $2.6 billion in Lehman Brothers, leading to just more than a $150 million loss by the Wall Street company’s bankruptcy declaration.
While the report was generally positive, Church said some of the issues raised require greater investigation. For example, he said, two securities were issued by a company outside the United States. Although Buffington said the notes were governed by New York law because that is the location of the trust company, Church said the County Counsel’s Office is double-checking there are no legal violations.
Church said the subcommittee also wants more information about security purchases that amount to daytrading.
"We don’t feel there should be anything like that with respect to a government-held portfolio,” he said.
Michelle Durand can be reached by e-mail: email@example.com or by phone: (650) 344-5200 ext. 102.