SAN DIEGO -- Members of the independent agency that manages San Diego County's $7.3 billion pension fund said Thursday that the media has created exaggerated concern over a recent $105 million pension fund loss caused by the collapse of a controversial "hedge fund" investment.

County Supervisor Dianne Jacob and Laura Demarco -- board members for the San Diego County Employees Retirement Association -- suggested that some media have exaggerated alarm over the $105 million loss, which amounts to less than 2 percent of the pension fund's value.

Jacob and Demarco suggested that recent opinion pieces written by editors in newspapers and rehashed in television interviews were wrongly exaggerating the hedge fund issue. They urged the media to attend an Oct. 19 meeting the association has scheduled to discuss the $105 million loss to become better educated about the issue.

At that meeting, association board members are also scheduled to talk about whether the association should cut its other hedge fund investments -- which now equal 20 percent of the $7.3 billion pension fund. A number of recent newspaper editorials have said that percentage is too high and too risky.

In addition to Jacob and Demarco, Stan Coombs, a spokesman for Retired Employees of San Diego County, Inc. -- which represents thousands of the pension fund's beneficiaries -- chided the media for using a "near hysterical tone" in reporting the story.

Retirement association leaders say they're extremely disappointed by the unexpected and heavy loss.

But they have also tried to "put the loss into context" by reiterating that the $105 million loss amounted to less than 2 percent of the $7.3 billion pension fund's value; that the fund still expects to earn a cumulative $320 million investment earnings profit this year and that the fund has earned $2.6 billion over the last three years.

The retirement association -- and wealthy investor groups nationwide -- were stunned Sept. 18 when Amaranth Investors announced it had lost $6 billion in a bad bet that natural gas prices would increase, rather than fall.

The company says it intends to go out of business, and that it will try to pay off its lengthy list of investors with whatever cash it can muster by liquidating.

The retirement association invested $175 million with Amaranth earlier this year, and over the last three weeks the estimated loss from that investment has risen from $45 million to $105 million.

Retirement board members vented anger over the issue when they met Sept. 21, but chose not to take any action, such as moving to cut what the agency had invested in other "hedge funds."

According to the Securities and Exchange Commission, hedge funds are not required to register with the commission, are subject to few regulatory controls, and are open only to wealthy and large investors. They also often use sophisticated, aggressive investment strategies that other investment instruments, such as mutual funds, cannot use. That includes selling short, swaps, and arbitrage -- the practice of simultaneously buying and selling in two separate financial markets in order to profit from a price difference between the markets.

After the Sept. 21 meeting, April Boling of the San Diego County Taxpayers Association -- a group that has been critical of the association -- said the association was dangerously investing tax dollars in "high-risk" hedge funds because it was desperate to generate high investment returns.

But Demarco and Association Executive Director Brian White rejected that notion, and said not all hedge funds were risky.

White said some hedge funds are created to chase big investment returns, 15 percent, 20 percent, 30 percent. He said those carry big risks for investment losses. White said the association's hedge funds aimed at earning much smaller returns, "2 percent or 3 percent -- not 20 percent."

Demarco said the 11 hedge funds that the association invested in were "overlays" that were designed to work with other investments in stocks -- the Standard & Poor's 500.

Demarco said the hedge funds were spread like "icing" over the S&P 500 cake, and were actually designed to carry less risk than the stocks themselves.

"Using the term hedge fund and equating that with high risk is not necessarily true," Demarco said. The purpose of this (hedge fund portfolio) is to actually lower the volatility of the S&P 500 and enhance the returns.

"So now when you put this cake together," she said, "it's actually less risky than the S&P 500. What's happening in the press, they're making it sound like we took 20 percent (of the pension fund's investments) and took it to Vegas."

Contact staff writer Gig Conaughton at (760) 739-6696 or gconaughton@nctimes.com.