ORANGE COUNTY IN BANKRUPTCY : Retooled O.C. Pool to Offer Safe Profits, Moorlach Says

Hoping to entice investors back into the county’s recovering portfolio, Orange County Treasurer-Tax Collector John M.W. Moorlach said Monday that he wants to offer four types of investment funds, including a high-yield pool composed mostly of bonds with maturities as long as five years.

Moorlach said he also wants to establish three other types of funds, one of which would include short-term investments with an average maturity of about 45 days and two other medium-term pools, which would hold investments anywhere between 180 and 365 days.

But even the longest-term investments, which will produce the highest yields, Moorlach said, will be invested in safer government securities, such as U.S. Treasury notes.

“It will be pretty vanilla, while still trying to provide competitive yields,” he said.

Moorlach said that contrary to the policy of his predecessor, former Treasurer-Tax Collector Robert L. Citron, the county will not borrow against its portfolio.

Citron’s strategy of leveraging the fund up to three times its value led the county to declare bankruptcy Dec. 6. Citron has pleaded guilty to six felony counts, including the misappropriation of funds he managed on behalf of nearly 200 cities, schools districts and other public agencies.

Citron also was criticized for a risky investment strategy that included complex securities, such as structured notes that lost the county money as interest rates rose. Moorlach said his long-term investments will consist of low-risk government securities mixed with plenty of short-term notes that will provide the county a constant cash flow.

Even with the aim to make the treasurer’s office more “service-oriented,” Moorlach said, it may take up to two years for any of the investors to trust the county to manage their money again.

“Once you lose credibility, it takes time to regain it,” he said. “I’d like to put out a sign that says, ‘Under New Management.’ ”

Part of the investment fund’s allure, Moorlach said, is that it will be among the most closely watched in the country. A five-member citizens oversight committee already is in place to examine the fund, and Moorlach plans to keep track of the investments based on their current market value, allowing investors to get a better handle on how much their money earns.

“I’m getting a sense right now that everyone [in the fund] will pick up their checks and take them back home,” Moorlach said. “It will be a marketing and performance job now. The investors are going to have to watch us. I hope they don’t rule us out completely.”

Moorlach said that he’d like to have the portfolio managed by the county treasurer’s office rather than by Salomon Bros., the investment banking firm that has been managing the county’s funds since the bankruptcy.

If the county’s investment oversight committee, which meets next on May 31, decides to discontinue its relationship with Salomon, the firm’s services may be terminated by July 1, Moorlach said.

Moorlach also reiterated his opposition to the half-cent sales tax that is being proposed to help the county out of bankruptcy.

The only argument for the sales tax, Moorlach said, “is to make everyone whole. And it may be cold and callous, but I have difficulty with that.

“Let’s forget the repayment claims and the secured claims and move on,” he said. “This is a tragedy, but it’s a financial problem and we’re dealing with it like a political problem.”