By Sharna Johnson: CNJ staff writer
Curry County Treasurer Bernice Baker said she has faith in a $2.3 million investment that, as of the end of December, has lost nearly $20,000 and paid almost $6,000 in management fees.
At a special study session scheduled Wednesday, she plans to show the account and its losses have been misunderstood, she said
“I’m not disappointed in it. I feel there’s going to be ups and downs in the market as we’ve all seen in the last year,” she said Friday. “I have faith in my advisors and I have faith that they’re doing the best for me that they can — faith in what they tell me.”
Baker handles the county’s investments at her sole discretion.
The county commission is responsible for approving contracts and serves in an advisory capacity, but has no authority over investments.
“We can’t tell the treasurer how to invest the county’s money,” said commission Chairman Bobby Sandoval. “The people elect her, and they elect her to do that job.”
Rob Burpo, the county’s investment advisor and owner of Albuquerque-based First American Financial Advisor Inc., is overseeing the account for the fund manager under contract with the county.
Burpo said even though the account statement, obtained Friday by the CNJ, shows a market value decrease, there wasn’t really a loss. Burpo said the account’s performance is being taken out of context.
And as of Thursday, Burpo said the account showed an $11,000 increase.
Burpo said there has been a lot of misunderstanding about the investment the county entered into in August and he hopes to clear it up at the special meeting.
“If you look at the portfolio on any one day, you see investments (fluctuate),” he said, explaining that is merely a snapshot of the account’s performance.
“That’s great if you’re a day trader, and that’s great if you’re trying to besmirch someone.”
Commissioners want answers
For months commissioners have been asking for updates on the fund.
“I have had concerns, from the onset, about the volatility of the Allegiance Capital Account and the amount of the management fees for this fund,” Commissioner Caleb Chandler wrote by e-mail Saturday.
Chandler has been the most vocal of commissioners on the subject since July, asking for information about the fund and its fees.
“I have not been satisfied with the information we have been receiving about the fund. I continue to have concerns and expressed those at commission meetings on Oct. 20, Dec. 1 and Dec. 15,” he said.
In four out of 4 1/2 months, the account showed a value decrease and paid 81 percent in management fees on its returns.
Traditionally, the county has taken a conservative approach to investing, holding its money in state and federal bonds and in certificates of deposit with local banks.
What’s in the fund
The portfolio, based on December’s statement, consists of almost $2.1 million invested in a combination of Fannie Mae, Freddie Mac, U.S. Treasury notes and about $45,000 in a J.P. Morgan money market fund.
Burpo said the portfolio with Macquarie Allegiance was designed to beat the rate of return on a one-year treasury note, and he said it has done that.
Though Fannie Mae and Freddie Mac were certainly not a good investment in the recent past, Burpo said the government has guaranteed them and they are no longer risky.
Friday, U.S. Rep. Barney Frank, chairman of the Fannie Mae and Freddie Mac oversight committee, announced he will recommend doing away with the companies and has yet to decide what to do with the $5.4 trillion in mortgage bonds held by investors.
December had the largest rise in interest rates since 2004, bringing down the value of bonds, Burpo said, which led to the decrease.
Burpo said he is frustrated by skepticism about the account.
“It is worth more money that it started out. You can’t say that it has lost value … it was just a really bad bond market,” Burpo said.
Even though the December statement shows a total account value of $2,291,259, Burpo said there is accumulated interest held on bonds amounting to just over $11,800. He said if the bonds were sold, the accumulated interest would amount to a more-than $3,000 gain on the county’s investment.
But it’s money, Burpo said, “you don’t own until you get the check in the mail.”
County Finance Manager Mark Lansford’s recent analysis concludes the county would have earned more money by investing in traditional CDs with local banks.
But Burpo said based on what he shows as an $8,000 gain thus far in January, Lansford’s report was “obviously wrong.”
“I’m anxious to hear Mr. Burpo’s explanation and if we cashed out today, what would we get,” Lansford said. “That’s the true value. Anything else is just paper; anything else is not actual value.”
The contract and fees
In July, Burpo said, the county commission approved a contract with Macquarie Allegiance Capital with the understanding the fund would keep money liquid. Burpo said this meant the county could capitalize on market improvements when they came about.
When Burpo was asked about the fees charged by the fund manager in July, he told the commission they would pay .26 percent of the account’s value to Macquarie Allegiance Capital, according to the July 7 meeting minutes.
Friday, Burpo said he acts as an intermediary for the account, overseeing it and working with the county, though he is not handling the money directly.
For that, he receives .40 percent of the account value in quarterly fees. Macquarie Allegiance Capital receives .26 percent quarterly for managing the fund, he said.
The fees being charged on the account are standard, Burpo said.
But commissioners said when they approved the contract, they were not aware Burpo would be paid a fee in addition to one charged by Macquarie Allegiance Capital.
“We were told 26 (basis points) at the commission meeting,” said Chandler. “I have asked to see a copy of the contract signed by the treasurer but, as far as I know, the commission has not been given a copy. I have not seen one. I had not been told that we were paying Burpo an additional 40 (basis points).”
Sandoval, too, said he does not recall there being a .66 percent management fee.
“I would question whether we really want to continue doing this, which I’m questioning anyway at this point,” he said.