According to House Bill 17-74, the current statutory provisions relating to the investments of the Fund should reflect “modern portfolio theory” and asset allocations recommended by experts for many public funds.
Currently, the Fund is only permitted to invest in stocks of corporations created under the laws of the commonwealth and the U.S. There is no requirement that these stocks be publicly traded.
Public Law 6-17, which created the retirement system, permits the Fund to invest in certain types of real estate loans and mortgages, government bonds, certain corporate bond, certain stocks and few others narrowly defined categories of investments. It also allows the Fund to invest up to 15 percent of the total value of Fund’s assets in “other securities.”
The Fund, the bill stated, should be allowed “more diversity” of investment by removing the restriction on non-U.S. stocks.
Also, the bill stated, the current definition of the bonds is overly restrictive to only 15 percent of the total value of the Fund’s investment.
Introduced by House Floor Leader George N. Camacho, Ind.-Saipan, H.B. 17-74 will allow the Fund’s board of trustees to choose investment allocations consistent with their fiduciary duty to the members.
The Fund supports the bill.
Fund Administrator Richard Villagomez said P.L. 6-17’s restrictions might have been reasonable and prudent in 1989. But since then, the international markets have developed significantly. Last year, for example, U.S. stocks comprised only 40 percent of all publicly traded stocks, he said.
He told the lawmakers the bill will allow the Fund to invest in other securities.
Time is of the essence in amending the current law, Villagomez said, because the Fund plans to implement a new investment strategy “to reduce its risk of loss and to position itself to take only well compensated levels of risk through prudent diversification.”
