ORANGE COUNTY IN BANKRUPTCY : 4 Other Counties in High-Risk Category : Investing: Survey names San Bernardino, San Diego, Monterey and Placer, but doesn't predict bankruptcies.

By JAMES F. PELTZ

Dec. 22, 1994 12 AM PT

TIMES STAFF WRITER

Four California counties besides Orange County maintain investment funds and strategies that carry “the greatest degree of exposure and/or risk,” according to a report released Wednesday by the Chicago investment firm Van Kampen/American Capital.

The report--among the most comprehensive snapshots taken of the safety of all 58 California counties’ investment portfolios since Orange County’s debacle erupted early this month--found that San Diego, San Bernardino, Placer and Monterey counties joined Orange County in the high-risk category.

Van Kampen officials were quick to note, however, that they are not predicting that the other four counties will file for bankruptcy, as Orange County did because of its massive investment losses tied to so-called derivatives and other exotic financial instruments.

“What we’re saying is the potential exists, either because of what they can invest in or because of the amount of derivative products they have,” said Robert Froehlich, Van Kampen’s research director.

An additional 17 counties, including Los Angeles, were said to carry “a slight to moderate degree of exposure and/or risk,” while the other 36 had “a high degree of safety.”

Van Kampen/American Capital manages $52 billion in fixed-income and equity mutual funds, of which $1.5 billion to $2 billion is invested in California municipalities and other issuers in the state.

Van Kampen wanted to show investors how safe California is generally, and in finding that 53 of its 58 counties “are not at risk, we thought that was information worthwhile to get out in the marketplace,” Froehlich said.

The list seemed to contain no major surprises. San Diego County has already disclosed paper losses of more than 10% on its $3-billion investment pool, and is trying to reassure its investors so they do not make big withdrawals and further jeopardize the fund’s liquidity.

The problems of the three other counties have also been publicized, but the three said Wednesday that they have adequate cash flow to absorb future shocks in the markets and avoid Orange County’s fate. Two of their treasurers also questioned whether Van Kampen, a mutual fund manager, could adequately measure their investment risk.

In Salinas, Monterey County Treasurer Louis Solton said he was concerned about “an out-of-state firm that may or may not have had much experience in analyzing a California public agency investment portfolio” being able “to analyze these specifics. That’s all I’m going to say about that.”

In San Bernardino, Assistant County Treasurer Dick Larsen said that he had not yet seen the report, but that “we are not at risk, and it’s hard for some of these mutual funds to understand the government investment pools.”

Los Angeles County’s $5.7-billion fund was among those listed as having slight to moderate risk because the fund’s guidelines allow it to make investments in exotic securities. Yet the county is largely staying away from such investments, Van Kampen said.

Indeed, reviews of Los Angeles County’s fund by two other firms give the county high marks for safety.

The evaluations were performed by Fitch Investors Service, a New York debt-rating agency, and Capital Management Sciences, a Brentwood firm that provides institutional investors with computer software and services for analyzing debt portfolios. CMS did its review at The Times’ request.

Los Angeles County “has a very conservative portfolio, with no derivatives in it, and nothing else that will react unfavorably to big interest rate shocks” in the capital markets, CMS Vice President Richard Barnett said.

Fitch found that the county also sticks with short-term investments--about 70% mature within one year. In a year in which rising interest rates have driven bond prices sharply lower, the short maturities helped limit the county’s paper losses as of Nov. 30 to only 1.2%, or $68 million, according to Fitch.

The same high marks are given to the city of Los Angeles’ $2-billion general investment pool, which CMS called “very safe, high quality and, in our opinion, an appropriate portfolio for a municipality.”

That portfolio also has no derivatives, no leverage--or borrowing aimed strictly at buying more securities on credit--and it appears to have a 5% paper gain for 1994, said Brig Belvin, CMS research director.

In showing that Los Angeles County pursues a much more conservative investment course than Orange or San Diego counties, the surveys confirmed what several municipal treasurers in California said was common knowledge in their business.

At the treasurers’ periodic gatherings for seminars or other meetings, the Los Angeles and Orange county officials “had high professional regard for each other, but totally different philosophies over the investing of public funds,” said Donald Oblander, finance director for the city of Beverly Hills.

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Rating Counties’ Investments

Besides Orange County, only four other California counties pursue investment strategies that carry high degrees of risk, according to the mutual-fund manager Van Kampen/American Capital. Here is how all 58 counties are rated:

LOW RISK Alpine Amador Calaveras Contra Costa Del Norte El Dorado Fresno Glen Humboldt Imperial Inyo Lake Lassen Marlposa Mendecino Modoc Mono Napa Nevada Plumas Sacramento San Benito San Luis Obispo Santa Barbara Santa Cruz Shasta Sierra Siskiyou Solano Stanislaus Sutter Tehana Trinity Tuolumne Ventura Yolo ***

MODERATE RISK Alameda Butte Colusa Kern Kings Los Angeles Madera Marin Merced Riverside San Francisco San Joaquin San Mateo Santa Clara Sonoma Tulare Yuba ***

SUBSTANTIAL RISK Monterey Orange Placer Sam Bernardino San Diego Source: Van Kampen/American Capital