Wilshire Associates Inc. has until Friday to provide consulting services to the beleaguered pension agency.
Wilshire’s managing principal Maggie Ralbovsky confirmed to Variety, “Wilshire’s services to the Fund will end this coming Friday.”
With the investment consultant on its way out, the Fund’s investment strategy has been put in disarray.
P.L. 6-17 mandates that the Fund hires an investment consultant with at least $200 million under advisement.
In the face of its investment consultant’s departure owing to P.L. 17-51, the Fund was left with no other choice but to temporarily invest in mutual funds.
The trustees expressed concern that they may not be in compliance with the law as they proceed with investing in mutual funds without a financial adviser as required by law.
With Wilshire’s contract ending on Friday, the trustees resolved to investing in mutual funds yesterday and chose Vanguard among other candidates.
With PIMCO, a mutual fund company, still remaining, Fund Administrator Richard Villagomez told the board that Wilshire is recommending to put some of the allocation that would have been managed by BlackRock to PIMCO.
He also told the board that the Fund is close to breaching its $260 million threshold — the point when they will have to shift to Glide Path 2012 allocation as recommended by Wilshire.
Villagomez said, “If portfolio value dipped below $260 million, then we change allocation to Glide Path 2012 which is a more conservative portfolio.”
According to Villagomez in his memo to the board on Oct. 4, the Fund was to proceed to Glide Path investment policy and would implement Glide Path 2011 allocation or GP11. He wrote that the transition to GP11 involved the termination of contracts with money managers Atalanta and Renaissance, reducing allocations to both Stralem and Fisher, contracting with BlackRock Inc. and distributing the assets in accordance with GP11.
BlackRock, whose contract automatically dissolved when P.L. 17-51 was signed into law, was supposed to hold approximately $115 million being the anchor of the portfolio, Villagomez said.
He added that it would have managed the passive index strategies.
The Fund, on Tuesday, decided in favor of moving to liquidate the assets under Stralem and Fisher before their term expires.
The $19 million with Stralem would be split between Vanguard and PIMCO.
The $19 million used to be invested in US large cap strategies.
The board also decided that the $10 million with Fisher be moved to mutual funds.
With Wilshire leaving on Friday, Villagomez said they can try working on their own using Wilshire’s glidepath guide.
However, it remains an issue that the Fund cannot invest without a financial adviser as required by law. Trustee Adelina Roberto reminded the board that the law requires the Fund to have an investment consultant.
Glidepath 2012
Villagomez also told the board that due to uncertainties brought by P.L. 17-51, the likelihood of drawdowns increasing with no government contribution in sight, and negative effects of market volatility on asset values and poor outlook, Wilshire is recommending to move to Glidepath 2012 immediately.
Ralbovsky told Variety that in order for the Fund to remain invested based on the glidepath strategy, Wilshire recommended for the Fund to use Vanguard index funds to gain exposure in lieu of the selected set of managers.
All these managers have all resigned because of P.L. 17-51.
“Vanguard funds are more expensive than the originally selected Blackrock institutional trust funds, but given that the Retirement Fund cannot contract with institutional managers/trust funds under the shadow of P.L. 17-51, Vanguard funds are the best options at this point.”
She added, “It is sad that the Fund had to be forced to resort to a sub-optimal solution.”
During Tuesday’s emergency meeting of the Fund, Villagomez said the Fund’s assets now stood at $265.9 million.
The Fund is less than $6 million away from breaching that threshold.
Should the Fund assets dip below $260 million, the Fund will have to proceed to Glidepath 2012.
Ralbovsky told Variety, “The Glidepath 2012 is one step further down the path than Glidepath 2011 and more conservative. The Fund’s situation continues to deteriorate faster than scheduled due to the government’s defaulting on its obligations and aggressive benefit payments. We need to move to the 2012 targets ahead of schedule to be consistent with the Board approved glidepath.”
Like a leaking CUC water tank whose water supply had been cut off, the Fund, Igisomar had described during the CRA general assembly last week, has been forced to withdraw from the market as $400,000 from the government cannot pay $63 million in benefits payouts a year.
In related news, the Commonwealth Retirees Association has elected its new set of officers.
In an election held at the Retirement Fund building on Capital Hill Tuesday, the board elected Larry Deleon Guerrero Cabrera as the new chairman of the board, replacing Juan Sablan.
Other elected officers were Manuel Tenorio, vice chairman; Jocelyn Guerrero, secretary; Oscar Camacho, treasurer; Agnes McPhetres, Sapuro Rayphand, Diego Benavente, and Dr. Helen Taro, board directors.
