Roland Machold, director of New Jersey's investment division, said a crisis like Orange County, Calif.'s could "absolutely not" happen with the state's $7 billion short-term cash management fund.

The division's independent oversight panel does not permit derivatives investments, whether they be options, inverse floaters, or reverse repurchase agreements, Machold said.

"We don't hedge the cash management fund. There are no derivative products in there at all," Machold said. "We've always been conservative."

The fund, whose rate of return currently averages about 5.6%, may invest only in U.S. government securities from a selected list, prime-rated commercial paper with a maturity of 270 days or less, and certificates of deposit with maturities of one year or less that meet Federal Reserve Board capital requirements.

The division does invest in riskier investments in its long-term pension funds because "there's no risk of a liquidity call," Machold said. Oversight guidelines permit the division to hedge its pension funds with currency futures, he said.

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