NEWPORT BEACH — City officials fixed a loophole Tuesday that allows the treasurer to potentially sink unlimited funds into risky investments.
The City Council voted to limit how much the city's fund managers can allocate to certain investments such as mortgage-backed securities or corporate bonds.
Some of the city's investments yielded close to nothing last year, and the finance committee, with the City Council's approval in August, made a few changes to give its investment managers more flexibility to achieve higher returns. But by removing a restriction on how much can be invested in a given source, the city opened itself to potentially unsound strategies.
Even though it was still within state guidelines, the council decided to eliminate any possibility of unsound investments.
"We went from being conservative to ultra-conservative," said Tara Finnigan, a spokeswoman for the city.
Now, the investment managers will not be able to invest more than 5% in any one non-governmental source.
Before the change, they could have hypothetically invested 30% of the city's total portfolio in a single corporate bond such as General Motors, or 20% in a single mortgage-backed security, the type notorious for triggering the recent financial crisis.
Deputy City Treasurer Dan Matusiewicz said the city wasn't making a strategic decision to concentrate its funds in certain places, but was simply trying to make some parts of the document consistent.
"We inadvertently opened the hole and we wanted to show that was not our intent," he said.
Another change the council approved Tuesday will require the city's investment managers to elicit at least three bids from brokers when making investment transactions.