WITH the repeal of the beneficiary derivative law, the Retirement Fund is now seeking to cushion the debilitating impact of the law by moving to bring back Wilshire Associates on board so it could revert to the glidepath allocation for its assets that have now reached the $250 million mark.
During yesterday’s board meeting, Fund administrator Richard S. Villagomez said, “With the repeal of the law, the Fund would be very likely to move out of CDARS and back to the allocation that Wilshire was recommending to the board.”
Villagomez was referring to moving out the Fund’s money from cash deposits in the Certificate of Deposit Account Registry Service and into “mutual funds, fixed income, and some other allocations under the glidepath scenario.”
“For sure we are moving out of cash,” said Villagomez.
The Fund had decided to place their assets in CDARS or FDIC-insured accounts of up to $250,000 immediately after the termination of Wilshire’s contract on account of the passage of the beneficiary derivative law.
According to its enabling act, P.L. 6-17, the Fund could only invest its assets under the guidance of a consultant with at least $200 million under its advisement.
Villagomez said yesterday that the Fund would halt the move of the money to CDARS once they rehired their former investment consultant on board.
Before P.L. 17-51 was repealed by P.L. 17-67, the Fund was projecting to complete the transition to an all-cash portfolio by Feb. 2012, moving between $15 million, $25 million or $30 million in liquidated assets to CDARS depending on the capacity that it could accommodate weekly.
The Fund, through CDARS, is dealing with about 119 financial institutions across the U.S. which makes the pension agency invested in banks in almost every state.
With the removal of the stumbling block to getting service providers, the Fund is now looking at obtaining the services of its former investment consultant, Wilshire Associates Inc.
It may be recalled that Villagomez in his missive to Gov. Benigno R. Fitial asked not only to sign the repeal of the beneficiary derivative law but also to suspend the procurement regulations for up to 90 days.
Yesteday, Villagomez told the board that the legal department is reviewing the contract with Wilshire.
Before P.L. 17-51, Wilshire had an open contract with the Fund.
Villagomez said their contract with Wilshire was $195,000.
He told Variety yesterday, the new contract fashioned by Wilshire called for a big discount.
Asked by Variety how much discount did Wilshire provide, Villagomez declined to give an exact figure but described it as “huge.”
Based on unaudited data, Villagomez said the Fund had moved about $105 million to CDARS with $145 million currently held by the Fund’s custodian, Bank of Hawaii.
The $145 million that BOH is holding is invested in Vanguard short-term bond ETF and PIMCO total return.
These assets sit in account for mutual funds that BOH set up for the Fund aside from a clearing account.
The Fund incurs costs in liquidating its assets and in doing a wire transfer with its custodian.
In the last quarter, the bank charged the Fund $7,000 as custodian fee.
In yesteday’s board meeting, Villagomez also anticipates getting the contract to Wilshire next week and once approved immediately move the Fund’s assets to a new asset allocation to be recommended by Wilshire.
The Fund board was faced with another difficult decision yesterday on whether to halt transition to CDARS immediately or to wait until their investment consultant is back on board.
Fund chairman Sixto K. Igisomar would like the Fund to decide on halting the move when they get the services of their former investment consultant.
“I am not recommending moving it out until Wilshire is on board,” Igisomar said.
But moving out the money from CDARS would not be as easy as expected owing to CDARS isn’t operating on a daily liquidity as the federally insured cash account or FICA.
According to Villagomez some of the accounts have four and 13 weeks maturity.
He told the board there are limitations on how fast the Fund could move the money out.
“Some are maturing – that can be moved out of the CDARS,” he said.
He told the board that some accounts had been rolled over in previous weeks for another four weeks.
Villagomez recommended to the board to cease the rollover and stop the move to CDARS.
In anticipating costs of the new changes to the Fund, Villagomez said if the transfer to CDARS continue, there would come a point when nothing would be left to the custodian.
Villagomez anticipates the Fund would be issuing another request for proposal for a custodian.
This, he said, is a big factor in the decision to move out of CDARS.
Trustee Adelina Robert shared her opinion that there are fees involved in terminating certificates of deposits.
In moving out of CDARS, Villagomez told the board that they might revert to one of the previously recommended glidepath allocations: GlidePath 2012 or Glidepath 2013.
Villagomez also told the board that their former actuary Buck Consultants may also be coming back.
He told the trustees that Buck Consultants is working on a draft contract and the Fund may get the contract in a matter of days.
He also told the trustees that they may go back and see if they could rehire the respondents to their previous request for proposals for money managers.
Igisomar recalled in yesterday’s meeting that just as they were to sign Black Rock’s contract, the acting governor had signed the beneficiary derivative law in Sept. 2011.
“We can go back and see if we can get them on board. It all depends on Wilshire’s advice,” Villagomez said.
With the law repealed, the Fund can now look into getting a financial auditor.
Before P.L. 17-51 became law, the Fund was mulling a transition to Glidepath 2012 with money manager Blackrock as the anchor money manager.
In that investment strategy, $50 million of the Fund’s $100 million court-mandated reserve for the active members would go to Blackrock liquidity and $50 million would be in manager Richmond Capital.
Another $50 million would be allocated for Blackrock for U.S. and international equities with over $120 million left at the time to be allocated for the other money managers.
Like dominoes falling one after the other, the money managers terminated their contracts because of P.L. 17-51, the Fund rescinded instructions to move to Glidepath 2012 then immediately moved to Glidepath 2013 or mutual funds then CDARS.
At the height of P.L. 17-51, the Fund could not contract with institutional managers because of P.L. 17-51.
The Fund had to settle with the more expensive Vanguard than Blackrock institutional trust funds.
Yesterday, Fund board chairman Igisomar confirmed to Variety that the board would decide on CDARS, among pertinent issues, on Friday.
