County's investing tactics faulted

King County must take "rapid and forceful action" to bring its troubled $4.5 billion investment pool up to industry standards, an advisory panel will tell the Metropolitan King County Council today.

The financial experts, in a briefing to the operating budget committee, will recommend that the county give 100 participating agencies more say in investing goals but seek to privatize day-to-day management.

The group says the pool — which invests cash for about 100 jurisdictions, including county agencies and school, utility, fire and library districts — takes unnecessary risks, lacks adequate performance measures, doesn't communicate well with participants, and does inaccurate accounting of participants' assets.

County Council members Bob Ferguson and Larry Phillips said they will propose legislation today to implement the panel's recommendations. Ferguson said the report "doesn't instill confidence."

When the panel "looked under the hood" of the investment pool, Phillips said, "they went, 'Oh my gosh, peddling this vehicle down the road isn't going to work.' "

The council appointed the volunteer panel in November, as several mortgage-backed investments were going sideways. Investments totaling $207 million are in default, but the county hopes to recoup most of the potential loss over the next several years.

The panel, in a written report it will summarize today, paints a picture of an operation hobbled by a lack of the technology and in-house expertise common to private investment firms. The investment officer and his staff spend hours each day manually preparing spreadsheets and reports "rather than analyzing the market and portfolio," panelists reported.

Unlike a private company that can report yields to investors on a daily basis, the King County Investment Pool can provide that information only at month's end.

"We believe that the County's ratepayers and taxpayers should be served by investment practices that meet the same standards they would expect in the management of their own private funds," the panel wrote.

The panel recommends that the $207 million in "impaired investments" be separated from the remainder of the pool because they are pulling down the yields of other investments. If the Bellevue School District puts $545 million of voter-approved bond proceeds into the investment pool, the panel calculated, the impaired investments would reduce district earnings by up to $1.1 million over a year.

Because state law prohibits the county from outsourcing operation of the investment pool, the panel recommends that the county hire an outside adviser while seeking to change state law.

County Finance Director Ken Guy on Tuesday defended the investment pool's long-term performance.

"I think that the report acknowledges that we've served pool members well since 1995 and that there's been a steady, consistent rate of return, 5 percent a year, and last year we distributed earnings of $200 million to pool members," he said. "... At the same time, I think I would be the first to acknowledge there's room for improvement."

John Rose, former county budget director and former president and CEO of bond underwriter Seattle-Northwest Securities, chaired the panel. The other members were John Dobrowolski, former Washington Mutual senior vice president; and Mary Ellen Mullen, a principal in Bridgebay Consulting.

Keith Ervin: 206-464-2105 or kervin@seattletimes.com