Most Government Investors More Wary Than O.C.’s Were

A new survey of North American government investment managers conducted because of Orange County’s financial crisis shows that most invest only in conservative securities, with nearly half shunning the derivative securities that helped sink the county’s investment pool and 78% saying they do not leverage funds for investment purposes.

Sponsored by the Government Finance Officers Assn. and MBIA Insurance Corp., the survey of 1,300 governmental units across the United States and Canada showed that 25% of the agencies reviewed their investment policies in the wake of the county’s bankruptcy filing last December, but only 7% modified their approach to investing.

Three percent of those surveyed said they had ceased purchasing derivatives because of the Orange County debacle, and 1% said they had sold their derivative holdings.

“Despite a few, well-publicized losses, the vast majority of government investment managers are prudent in their choice of investment instruments,” said Patricia C. Watt, director of GFOA’s research center. “Public entities generally did not find the need to modify their investment practices following Orange County, since they did not engage in risky investing techniques to begin with.”

According to the survey, which was released Thursday:

* 81% of investment activity is handled by appointed, rather than elected, officials; 90% of day-to-day management is done by government staff, not external managers.

* Maximum investment horizons are less than a year for 45% of the respondents, and more than five years for only 9%.

* Less than 5% have any investments in inverse floaters, reverse-repurchase agreements or flexible repurchase agreements, instruments that plagued Orange County’s pool.

* 78% follow a written investment policy.

“It was gratifying that the survey confirmed that the vast majority of public investors place safety and liquidity of their investments above yield,” MBIA Executive Vice President Francie Heller said.