Financial Advisers Make Pitches for Pool Funds : Investment: In anticipation of this week’s release of $5.8 billion, cities and districts have been flooded with offers promising security.

The feeding frenzy was underway long before a federal bankruptcy judge decided earlier this month how to disburse $5.8 billion in Orange County’s failed investment pool among nearly 200 cities, school districts and special districts.

Huntington Beach City Treasurer Don Watson said his office started getting calls two months ago from portfolio managers offering well-rehearsed pitches that highlighted safety and earnings, key selling points for potential investors who lost money on what many considered to be a sure thing.

“They’re saying, ‘You’ve been burned once; we don’t want to see you burned again,’ ” he said. “Some of them are quite persistent. . . . It’s like a fisherman trolling to see whether he can snag anything.”

Looking for a piece of the action, money managers have been working overtime as Orange County prepares this week to pay participants in the county’s investment pool an average 77% of the money remaining in the wake of the county’s Dec. 6 bankruptcy.

That’s a treasure trove for those who make money handling money, but most of these investment firms might be out of luck. Many participants who said they put blind faith in the county’s pool, as well as money, don’t intend to make the same mistake twice. Instead, they plan to handle the financial investments on their own.

“We learned our lesson,” Laguna Niguel Councilman Eddie Rose said. “We’re steering clear of the county pool.”

Many cities and special districts are considering alternatives, from banking on short-term investments like treasury notes or bonds to placing their money in a state-run investment pool. And they are putting a premium on security, not on the promise of high returns.

Huntington Beach officials, like many others, say they will save money on investment firm fees and set up a citizens committee to oversee financial strategies.

“They are all going to take their cut. . . . I’m not sure if we need them,” Huntington Beach Councilman Ralph Bauer said of portfolio managers. “It doesn’t have to be complex, if you don’t have a speculative portfolio. . . . We don’t need margins. We don’t need derivatives.”

But that hasn’t stopped investment firms from hawking their wares. In Irvine, money managers looking for work flooded city phone lines with dozens of calls.

Meanwhile, representatives of the nation’s largest municipal bond insurance firm have swung into town to try and sell a money-management program with a promise that investors “can never lose a penny.”

More than 50 money managers came knocking when the Orange County Transportation Authority announced recently it was seeking bids to manage its billions. OCTA chief executive Stan Oftelie said he decided to undertake a formal bidding process to avoid the full-court press from investment firms.

“We didn’t want to have that kind of suede shoe operator showing up and saying: ‘Pork bellies,’ ” Oftelie said. “We were ahead of it. But I still got a couple of letters from people who were interested in giving us ‘opportunities.’ ”

“What you’re getting are some very talented, very qualified firms who are making their services available as this money becomes available,” said Steven Guterman, a director of investments at Salomon Bros.

“I wouldn’t look at it as taking advantage,” said Grover McKean, a senior vice president with Lazard Freres & Co., a New York-based investment banking firm with Los Angeles offices that seems to be one of the few not trying to drum up new business in Orange County. “There is a need . . . and there are a number of people offering these services.”

Orange County’s schools are in a different category. Unlike cities and special districts, schools are required by state law to deposit their operating funds in the county pool. There is disagreement about whether they can now invest their surplus funds elsewhere.

The school districts, which had a total of more than $1 billion invested in the pool when it went bankrupt, expect to remain in the county pool--at least for now, said John Nelson, assistant superintendent of the Orange County Department of Education, who heads a subcommittee of school districts that suffered losses in the bankruptcy.

Because of the bankruptcy, however, some want to see a change in the state law.

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Some pool participants were still undecided about what to do with the money they will be receiving.

Vicki Baker, finance director for the city of Yorba Linda, said it will take up to a week for her city’s $8-million check to clear the bank. “It’s like shopping, we need to see what’s the best rates out there, and then decide,” she said.

The state’s Local Agency Investment Fund has received numerous inquiries from pool participants interested in learning whether LAIF, which has money in the state’s $27-billion investment pool, is for them, administrator Pat Beal said.

“A lot of people are really uncertain about what to do with their money, and they’re hearing from broker dealers, money managers, investment advisers. The word is out that there is a lot of money down there,” Beal said.

The New York-based MBIA Insurance Corp., which announced Monday that it will back $275 million in recovery bonds for the county, has put together an investment proposal guaranteeing security for new investors, said Francie Heller, an MBIA executive vice president.

Heller declined to estimate how much her program would cost Orange County agencies. But Jon Schotz of Saybrook Capital Corp., a financial adviser working for participants in the county pool, said it would likely be 20 to 25 cents for every $100 invested.

County Treasurer-Tax Collector John M.W. Moorlach also finds himself dabbling in the promotions business. Moorlach said he has not given up hope of persuading pool participants to reinvest their money in the county pool.

Moorlach, aided by financial adviser Salomon Bros., said the pool has been earning about 5.8% for the past several months and stressed that the investment policy has changed “180 degrees” from the risky strategy pursued by former Treasurer-Tax Collector Robert L. Citron.

“We’re going to act like a private vendor and just be as competitive and as customer relations-oriented as we can,” Moorlach said. “We hope people will think twice and stick around. But it doesn’t look like very many will stay.”

Times staff writer Jodi Wilgoren contributed to this report.