LOS ANGELES -- The Orange County Transportation Authority has asked its underwriting team to find ways to improve returns on the nearly $1 billion the authority has invested in the Orange County pooled investment fund.

The underwriting team, headed by Lehman Brothers, was chosen last week for a three-year contract, James Kenan, director of finance and administration for the authority, said Monday.

Because the authority's next major bond financing is not scheduled until late 1996 at the earliest, the underwriting team's short-term focus will be on exploring new investment opportunities, Kenan said.

The immediate focus will be on boosting returns on the money in the county pooled investment fund, administered by the treasurer of Orange County.

"Because of some of the strategies in place, the yield [in the pooled investment fund] has been going down," Kenan said. "It is about 6.70%, but we have to look at whether or not it is in our best interest, working closely with the county treasurer's office, to possibly take some of that money out of the county pool."

Kenan said the underwriting team will be asked to discuss "some type of a diversification program [in which] we could get involved in some other investments that might guarantee us something in the neighborhood of 7% to 7 1/2% over the next two or three years."

Matthew R. Raabe, Orange County's assistant treasurer, said yesterday that the county pooled investment fund contains $7.5 billion in assets and last month returned 6.75%.

Authority officials "are asking their financing team to identify what part of the fund might be more suitable for longer-term investments, as opposed to short-term investments," Raabe said. He said that his office would "work with them" to explore options.

While Raabe characterized the authority as a "big client," he said most investors occasionally "will ask us to provide investment advice and alternatives. That is all we are doing in this case."

Kenan said the underwriting team will be asked, in consultation with county finance officials, to develop "an interim strategy for the next two years that might yield an additional 50 to 75, or maybe 100 basis points above the county pool, without getting on the risk side of things."

Underwriting team members already have outlined "some possible investment or reinvestment strategies," Kenan said. "Now it is a matter of figuring out a way to put some of these ideas in place, while working very closely with the folks at the [county] treasurer's office."

The authority's three-tiered underwriting team consists of a senior manager group, a co-manager group, and a selling group.

Lehman is the senior manager and bookrunner, while Goldman, Sachs & Co. and Smith Barney Inc. are co-senior managers.

The co-manager team consists of CS First Boston, which was named senior co-manager. Kidder, Peabody & Co.; Smith Mitchell Investment Group Inc.; and E.J. De La Rosa & Co. were named co-managers.

The selling group comprises Dillon, Read & Co.; Bear, Stearns & Co.; and Merrill Lynch & Co.

Kenan said he expects Kidder Peabody to be dropped from the list in the wake of last month's agreement by PaineWebber Inc. to buy Kidder.

If Kidder is removed from the team, Kenan said, "we will look into the selling group and move one of those firms up into the co-manager role."

He said the authority's finance and administration committee, which recommended the underwriting team to the authority board, has the option to change the composition of the underwriting team "for outstanding performance, or for a lack of performalice."

"Our intent was to have a selling group of firms that we may elevate into a co-manager role," Kenan said. "We have a key-person proviso so that, if, let's say, the key people at Lehman Brothers leave, then we have a right to look somewhere else in this group for a book-running firm."

Kenan said the authority's only large bond issue on the calendar is scheduled in late 1996 or early 1997. It is tentatively sized at about $200 million.

Before that, however, the authority is "looking at some smaller deals," Kenan said. "We're probably going to be doing two or three certificates of participation financings" for bus-related purposes and "we've got some other equipment that we're looking at," he said.

He said the authority also would look for "some defeasance opportunities should the market turn around."

The authority's first offering in the municipal market came in 1991 with the issuance of $49 million of sales tax revenue notes. Since then, the authority has issued more than $750 million of long-term debt. In addition, the authority has a $200 million commercial paper program that includes both taxable and tax-exempt securities.

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