Citron Makes Public Details of Investments : Finance: County treasurer responds to demand of political challenger, who has criticized aggressive handling of $7.5-billion portfolio as too risky.


Responding to a demand by his political opponent, County Treasurer Robert L. Citron for the first time Monday made public details of his aggressive investment of public funds--which is viewed in the business both with respect and as risky.

After picking up more than 700 pages of investment data from the treasurer’s office, John Moorlach, a certified public accountant and financial planner who is Citron’s first challenger in 24 years, said he would spend the next “day and a half” deciphering them.

“I want to get a handle on this thing,” Moorlach said.

Moorlach has charged that Citron’s investment strategies are far too risky and the recent rise in interest rates--including another increase on Monday--could result in substantial losses of taxpayer money.


The usually low-key county treasurer’s race has attracted more attention since it was disclosed last week that the city of Tustin, worried about possible losses, withdrew the $4 million it had invested in the Citron-managed investment pool.

As treasurer, Citron is responsible for investing both the operating and capital improvement funds of the county, as well as the county’s pension funds, and his past success has attracted the funds of virtually every school district and almost every municipality in the county to an investment pool that Citron manages.

Although Tustin financial officials say the decision was motivated purely by business considerations, its action has taken on political overtones because Tustin City Council member Jeff Thomas, who works for Moorlach’s campaign, was heavily involved in the decision to withdraw its funds.

While Citron has acknowledged recent “hits” on the $7.5-billion, county-run portfolio, he maintains that he has taken no undue risks with taxpayer money. The veteran treasurer also points to his performance over the past 15 years, which bond professionals and investment experts say is among the best.


At issue in the county-managed portfolio are Citron’s use of “derivatives” and “reverse repurchase agreements.”

In a reverse repurchase agreement, the holder of investment-grade securities, such as treasury bills or bonds, sells them subject to an agreement to repurchase the securities for a slightly higher price in the future. In the meantime, the cash that is raised through the first sale is invested in sometimes riskier securities that pay a higher rate of return. If the higher-paying securities do not lose value, as most bonds have in recent months, the strategy can be lucrative.

Derivatives are investments that are linked to the performance of some underlying asset such as bonds, foreign currencies or interest rates.

Though common, both kinds of investments require a high degree of investor sophistication, and predicting how they will perform is tricky.

Chriss Street, a local business executive and Newport Beach contributor to Moorlach’s campaign, has expressed concerns about Citron’s tactics to the Wall Street Journal, Forbes magazine and to Standard & Poor’s, a bond rating service in New York.

Monday, Diane P. Brosen, a director with Standard & Poor’s, said company analysts took a close look at the Orange County investment portfolio on March 30.

“We don’t have any major concerns with the Orange County portfolio,” she said. “If you look at the portfolio of any issuer the size of Orange County, you’re going to find reverse repurchase agreements. It’s not just Orange County, it’s everywhere.

“The county’s credit rating is very high, and we are confident the county will repay all the bonds in the pool, the school district bonds, everything. It’s a very strong county, extremely well-managed.”


It has been difficult for money managers, investment brokers and bond experts to comment on Citron’s strategies because his portfolio had not been made public. In the next few days it is likely that the records released Monday will be circulated among industry insiders.

Because of the amount of money Citron deals with and his admittedly aggressive tactics, he is well-known and word of the controversy has already spread far beyond local borders.

“He’s aggressive,” said Rod Rich, who handles a $500-million portfolio for the city of Seattle and chairs the investment committee for the Municipal Treasurers Assn. of the United States and Canada.

“Whether that’s good or bad, that’s up to individual interpretation, but he’s known as an aggressive investor.”

Marie Mlacnik, Monterey’s treasurer and the president of the Calif. Municipal Treasurer’s Assn., said, “He’s a very, very progressive treasurer. Bob probably does a lot of things that people may think are risky, but I’m certainly not going to sit and criticize him. He’s done wonderful things for the county. Bob knows what he’s doing.”

Mary Turner, who retired after more than 30 years as city treasurer of Fullerton and Anaheim, having served as president of both the state and national treasurer’s associations, agreed. “Bob is known throughout the industry as being a very astute investor,” she said.

First elected as tax collector in 1970, Citron became treasurer when the Board of Supervisors combined the two positions in 1973. Since that first race, he has never again faced an opponent.

He was among those who lobbied the state to expand the investment options of government agencies back in the 1970s. His success has lured many municipalities from outside Orange County along with nearly all the local agencies.


The yields from his pool, which includes funds from 186 entities, has consistently been among the highest in the state.

Every year he reports his high yields to an admiring Board of Supervisors, cities and school districts.

“As far as I know,” said Don Merz, Sonoma County treasurer, “he’s never lost any money.”

Only two cities in Orange County--Garden Grove and San Juan Capistrano--don’t contribute to Citron’s pool. Officials from both cities say Citron’s returns are tempting, but they don’t have the financial wherewithal to absorb any losses.

Some agencies, such as Los Angeles County and the state treasurer’s offices, do not use reverse repurchase agreements because of the risk involved, but other counties, including San Diego and Ventura, do.

Bill Sherwood, director of the investment division for the state treasurer’s office, said he does not use reverse repurchase agreements, but “a lot of people would consider us conservative,” he said. “We always put safety and liquidity first.”

Tustin Mayor Jim Potts has said he is considering asking the city to return to the county’s pool. He said politics is to blame for the entire turn of events.

Tustin Treasurer Ronald A. Nault said he never intended or expected the withdrawal to get the public attention it has. If city officials want to rejoin the county pool, then so be it, he said.

Times staff writer Mark Platte contributed to this story.

Comparing O.C.'s Portfolio The investment portfolio managed by the Orange County treasurer’s office has returned substantially higher rates of interest than other similar pools of government agency money. Here is a comparison of average return on investment for Orange County, San Diego County fand the state’s local agency fund: 1993 Orange County: 7.84% San Diego: 5.71% California: 4.55% Source: Orange County Treasurer