During its emergency meeting yesterday on Capital Hill, the Fund board approved eight measures to protect its assets that have dwindled to $264,564,293 as of Oct. 11 based on unaudited report.
The beneficiary derivative lawsuit law has left the Fund investment strategy crippled in the absence of an expert with at least $200 million under its advisement as mandated by P.L. 6-17.
Seeing that the Fund could not get a restraining injunction to PL 17-51 and no political solution is in sight that could convince Wilshire to overturn its decision, the board decided to leapfrog to a more conservative and modified asset allocation called Modified Glide Path 2013 as recommended by Wilshire.
Under this program, the Fund will initially liquidate Templeton foreign equities immediately.
Secondly, the Fund board approved the liquidation of Richmond Capital account and the immediate termination of the contract.
The Fund also rescinded instructions to implement Glide Path 2012 as recommended and approved in the previous meeting of the Fund board.
In the previous board meeting, the Fund board authorized the use of large mutual funds with strategies that BlackRock would have managed under a previous investment strategy to be placed under Vanguard mutual funds as recommended by Wilshire.
It was agreed before that the Fund would immediately proceed to Glide Path 2012 once it has breached the $260 million mark; however, in the absence of an investment consultant, the Fund now proceeds to an ultra conservative Glide Path 2013.
The fourth recommendation approved by the board is an interim step as the Fund moves to cash or cash equivalent asset allocation.
“The recommendation is to adopt and implement the Modified Glide Path 2013 as a transitional portfolio until we are able to secure a relationship with CDARS service providers or in the event that new investment consultant comes on board,” Fund Administrator Richard Villagomez told the board.
CDARS is an abbreviation for Certificate of Deposit Account Registry Service.
By placing a large deposit with any of CDARS Network members, the Fund uses the CDARS service to place its funds into certificates of deposits issued by other members of the CDARS Network.
Funds placed through CDARS are deposited only in FDIC-insured banks with $250,000 as maximum insurance for deposits.
The fifth recommendation is to authorize the use of CDARS program structure based on the Fund’s liquidity needs but not to exceed three months maturity.
Villagomez clarified that there’s a possibility that the firms might not contract with the Fund owing to PL 17-51. He said they will be discussing this with the firms.
The board also approved to work first with First Financial Corp. as a CDARS “participant of choice” as recommended by Wilshire.
Villagomez also told the board that should First Financial decided not to work with the pension agency because of PL 17-51, he recommended for the Fund to consider two other service providers: Reliance Trust Company based in Atlanta, Georgia. and Ever Bank based in Jacksonville, Florida.
Under this sixth recommendation, the board also approved a cash or equivalent asset allocation.
The seventh recommendation is to adopt the transition itself to CDARS program— a cash program. This will require liquidation of assets with PIMCO [mutual funds] from which to draw down payment for benefits.
Villagomez also explained that with PIMCO there’s opportunity to produce relatively larger returns. He added that Vanguard, on the other hand, is a passive index fund that replicates the index.
He said Vanguard and PIMCO are both “very liquid.”
As the Fund sets to issue an emergency RFP for a new investment consultant and in the event it hires a replacement for Wilshire, Villagomez recommended, and the board approved, to stop the transition to CDARS and to adopt a new asset allocation as recommended by the new investment consultant.
As the Fund’s assets have been liquidated, these will go to Vanguard and PIMCO mutual funds and then transition to CDARS program where cash will be placed in banks with a maximum of $250,000 that’s FDIC insured.
Absent an investment as mandated by its enabling law, the Fund is left with no other investment vehicle but cash.
During yesterday’s emergency meeting, the Fund sought to uphold its fiduciary duty by putting its assets in vehicles with least exposure to fluctuations, Fund chairman Igisomar said.
The Fund trustees considered other options that would give the Fund assets better returns and least amount of exposure to liability.
Igisomar said, “Our goal is to invest the money properly…we should not be tampering with investments of which we don’t have knowledge of.”
They explored revolving line of credit but Villagomez reasoned it is an excellent idea if the Fund has sporadic cash flow — if it knew it would be receiving lump sum in the near future.
“There’s hardly any contribution coming in,” he said adding that the Fund received $400,000 three days ago in addition to $400,000 that the central government had given in the last 12 months.
He also reported that the Fund is still liquidating its assets with JP Morgan. “We are getting cash redemptions. From $19 million, it is now down to $1.6 million.”
