Retirement Fund in disarray
08 Sep 2011
- Last Updated on Sunday, December 02, 2012 18:14
- By Alexie Villegas Zotomayor & Andrew O. De Guzman - Variety News Staff
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THE recently signed derivative lawsuit measure has so far resulted in the termination of the contracts of the Retirement Fund’s two money managers even as the troubled pension agency braces for more canceled contracts.
The Fund’s newest member of the board, Frank P. Rosario, tendered his resignation citing “health concerns.”
At least two of the Fund’s four legal counsels also indicated that they were ready to resign, but were asked by Fund Chairman Sixto K. Igisomar not to do so right away.
During a board meeting yesterday, Igisomar said they have been advised by their investment consultant Wilshire & Associates and other money managers that they will have to reconsider their relationship with the Fund because the new law exposes them to too many unforeseen liabilities.
He also said Fund Administrator Richard S. Villagomez was advised by money manager Stralem & Co. that it is giving a 30-day notice to terminate its contract with the pension agency.
Wilshire also informed the Fund of its intent to severe its relationship with the agency.
An email from money manager Richmond Capital expressed the same sentiment.
The Fund believes that Fisher Investments is also likely to end its contract.
Fund said its contract with another money manager, BlackRock, has a provision allowing for its termination should the derivative lawsuit bill becomes law.
Villagomez said the Fund needs these money managers and consultant in order to comply with the investment law.
“Our worst fear has come true,” he said.
“Whether it’s a valid law or not, we are feeling the effects already,” Villagomez said.
Public Law 6-17, the Fund’s enabling law, requires the board of trustees to obtain the expert services of money managers and investment consultant, he added.
“It is the fiduciary duty of the board and the Fund to get those experts,” he said.
With the derivative lawsuit bill now law, it will either drive up the costs of obtaining those services or prevent the Fund from obtaining them, he added.
Wilshire, for example, will need to procure a liability insurance should it decide to continue working with the Fund.
Wilshire gets $195,000 a year from the Fund and the liability insurance will cost $180,000, Villagomez said.
“We are left with responding and dealing with the effects of [Public Law] 17-51 and one of the scenarios is the rest of the money managers will quit. We would like to plan for that,” he said.
The money managed by managers with terminated contracts now goes to a custodian, the Bank of Hawaii.
Trustee Adelina Roberto said $100 million in cash now sits in the bank.
Villagomez said it’s earning only 1 percent when it could have earned 4.4 or 4.3 percent in the market. This is $9 million in potential income lost, he added.
He said the bank custodian may also cancel its relationship with the Fund.
He told the board of Wilshire’s recommendation to consider mutual funds that will not be contractual in nature.
The board decided to authorize Villagomez to look into this option and make a presentation to the board.
The board also decided yesterday to authorize the publication of a job vacancy announcement for legal counsels as it foresees more lawsuits.
Board legal counsel Viola Alepuyo told the trustees they were supposed to tender their resignation yesterday but “held it off” upon Igisomar’s request.
The board then went into an executive session — a closed door meeting — to discuss details of possible courses of action.
The board will also talk with money managers and consultants on Saturday at 7 a.m. via teleconference.
Also yesterday, the Commonwealth Retirement Association, as intervener, informed the federal court of the “automatic removal” of the Fund’s lawsuit against the government from the CNMI Superior Court.
CRA, represented by board member Sapuro Rayphand, filed the written notice of removal in federal court.
Submitted as exhibits were two judgments issued by CNMI Superior Court Judge Kenneth L. Govendo regarding the Fund’s lawsuit against the CNMI government, Gov. Benigno R. Fitial in his official capacity, the Department of Finance, and then-Finance secretary and now Lt.Gov. Eloy S. Inos.
The notice stated that “a CNMI Superior Court judge has now, more than two years after rendering a $230 million judgment, and with little if any objectively meaningful steps toward enforcement of that judgment having been effected, deemed appropriate the notion of unilaterally converting a monetary collection proceeding before the Superior Court, into a hybrid class action, invoking priority with disparate benefits/interests for the class of which he and his peers would themselves appear to be members, and transposing himself from judge to Fund administrator or self-appointed receiver.”
Attorney Bruce Jorgensen will be representing CRA in this matter, and is expected to file a motion to consolidate this action and the lawsuit filed in federal court by two anonymous retirees against the Fund and Fitial to place the agency under federal receivership.
Then-CNMI Superior Court Associate Judge, and now Federal Chief Judge Ramona Villagomez Manglona earlier recused herself from hearing this matter in local court, and so it was transferred to Govendo.