In the last board meeting, the MPLT board discussed a proposal by CUC chief financial officer Charles Warren that the utility agency had $160,000 to pay off early its loan with MPLT.
In 2008, MPLT loaned CUC $3.5 million that’s due in August 2011. As of Dec. 2010, the remaining balance of the loan was $245,346.
“Last meeting, they said they can make it in August,” said Bruce I. McMillan, the board consultant, referring to communication with CUC as discussed in the March board meeting.
In the March board meeting, McMillan reported that the agency received a letter from Warren proposing to immediately pay $165,720 out of the $245,346 balance, and consider the $165,720 as full payment.
Chairman Alvaro A. Santos recommended for MPLT to inform CUC of the board’s decision to decline the proposal that would absolve the utility agency of $80,000 and instead wait for the balloon payment maturing in August 2011.
In an email to Variety, CUC Executive Director Abe Utu Malae confirmed the said proposal.
“Our CFO — back in the days when he had enough cash —proposed to pay off a loan early. MPLT declined,” Malae told Variety.
He also confirmed that CUC’s loan balance of $245,000 is due in August.
Money managers’ performance review
Meanwhile, Board consultant Bruce I. McMillan advised the board to look at the money managers’ performance based on a three- to five-year performance in the market.
“It is not fair to judge the money manager over three-, six- and 12-month periods. You really need to look at them over a three- to five-year period.”
McMillan reviewed with the board the performance of the money managers and reported on fluctuations to their performances.
Based on the MPLT’s asset allocation, McMillan said large cap core, managed by Atalanta Sosnoff, is overweighted by 0.30 percent vs strategic allocation at 10 percent.
McMillan said the Fund is overweighted by $164,000 dollar-wise.
Since 2006 when the MPLT started working with Atalanta Sosnoff, McMillan said Atalanta Sosnoff has been beating the benchmark — Standard & Poor’s 500, a broad-based index.
McMillan reported, “We are looking at 4.32 percent yield for the quarter on Atalanta….YTD [year to date] is 15.07 percent.”
He said Atalanta is below the index — S&P 500.
Trailing 12 months, McMillan said it was even worse with 9.32 percent vs. 15.65 percent.
“Trailing 3 years, that’s where you will have to judge the money manager,” said McMillan who reported that Atalanta beat the index trailing three years with 5.33 percent vs. 3.06 percent.
Its ending market value, McMillan said, was $6.747 million.
McMillan said over the three-year-period, it encompassed the 2008 downturn where it performed at 5.02 percent vs. the 2.35 percent of the index.
“Where the overall market is going down very steeply, the money managers are supposed to perform in those kinds of situations. Since 2006, you’ll see they [Atalanta] are beating the benchmark,” he told the trustees.
He reported that the market value of securities was $6,477,000 as of Jan. 2011 and it was $5.88 million as of Oct. 1, 2010. Trailing 12 months, Atalanta, McMillan said, reached $11.88 million in April last year.
The board inquired on the reason for the decline from $11 million to $6 million, and McMillan replied that was where the money advanced to the CNMI government came from.
Furthermore, McMillan told the board that Atalanta portfolio was heavily into technology, with 27 percent of the portfolio in information technology, 15.7 percent in energy, 14.9 percent in industrials, among other sectors.
“Atalanta is a style that concentrates on sectors,” McMillan said.
Moreover, the Fund was overweighted by 1.36 percent in the emerging markets.
Lazard and Newgate are the managers for the emerging markets where the Fund’s strategic allocation is 5 percent.
For convertible securities — a relatively new class — McMillan said convertibles are allocated 10 percent and was overweighted by 0.2 percent.
He said MPLT will do some rebalancing with the allocations as local high yield and alternative investments classes remain unfunded.
This was the reason, McMillan said, that domestic fixed income core managed by Richmond was overweighted by 10.6 percent.
He said, “We’re still in the process of sorting out two asset classes — Low High Yield and Alternative Investments.”
He reported to the board that they arrived at a decision to keep the status quo with the allocation “until we reached those decisions.”
He said the money to fund the two asset classes is now sitting with Richmond.
“When we fund those local high yield and alternative investments, it will come from the domestic fixed income core which is 55.6 percent [of the allocation],” he said.
McMillan said to fund these asset classes would need 15 percent reallocation of the fund with 10.6 coming from the domestic fixed income core while the rest will come from High Yield (managed by SEIX) and Emerging Markets (managed by Lazard and Newgate).
McMillan explained that $6,804,000 is with Richmond while alternative investments was underweighted by $6,583,000.
McMillan also said high yield investment’s strategic allocation is five percent and was overweighted by 1 percent.
The non-U.S. fixed income/international bonds’ strategic allocation is 10 percent but was overweighted by 1.6 percent. As of April 27, its value was $4.012 million.
Emerging markets, he said, has a strategic allocation of 5 percent and was overweighted by 1.3 percent.
“Right now it doesn’t make sense to rebalance [the allocation],” McMillan told the board.
As for core fixed income, McMillan said, “We’re not out of balance that much.”
As for bonds, the MPLT switched from PIMCO to Templeton in Jan. 2011.
Based on McMillan’s report, Templeton was performing better than the benchmarks.
He said MPLT has 10 percent allocation in bonds — “but that is a combination.”
McMillan reported that previously he provided the board a white paper on investment proceeds; that there’s a uniform income principal which designates how to allocate investment income between income fund and principal fund.
Proceeds from sale or change of investments, he said, is always principal, interest in dividends received is always income.
He reported too that the stock market has been doing well.
He said inflation and higher interest rates are enemies of the stock market. “So there will be a time when interest rates will go up and will have adverse effect.”
