However, the Fund fears it may violate P.L. 6-17 which requires the pension agency to have a financial adviser with at least $200 million in advisement.
During the emergency board meeting yesterday on Capital Hill, the Fund board unanimously voted in favor of investing in mutual funds. The contracts of its two managers, Stralem and Company and Fisher Investments, are expiring soon.
The two hold $34 million in Fund assets.
“P.L. 17-51 [the derivative lawsuit measure] has basically chased away the money managers, investment consultant, actuary and the financial auditor. What’s pressing before us is that Stralem and Fisher have given 30-day notice of termination of their contracts,” Villagomez said.
He said the 30-day notice for Stralem ends on Thursday and Oct. 12 for Fisher.
The notice of the Fund’s investment consultant, Wilshire Associates, ends on Friday.
Villagomez told the board that Wilshire recommended the immediate liquidation of the assets under the two managers.
He said Stralem agreed to stay on board for another week pending completion of the liquidation process.
Villagomez said the Fund cannot rush the liquidation process.
The Fund board authorized yesterday the pension agency’s venturing into mutual funds and liquidating the assets under Stralem and Fisher’s advisement.
Trustee Adelina Roberto said the law mandates them to retain an investment consultant.
In his memo to the board, Villagomez said the mutual funds option maybe short-lived as the Fund is mandated by law to have an investment consultant.
Fund counsel Carolyn Kern also advised the board that Wilshire, whose term expires on Oct. 9, that it will remain on board until December if the local court would issue a temporary restraining order to prevent the implementation of P.L. 17-51. The motion for TRO had been modified into a temporary injunction last week.
Keeping Wilshire until December, Kern said, will buy the Fund some time to deal with the transition as it processes request for proposals.
The board approved the issuance of emergency RFP’s for investment consultant, actuary, and financial auditor.
Villagomez said Vanguard was recommended by Wilshire.
Based on Wilshire’s evaluation, Vanguard came on top of the heap of mutual fund companies that included T. Rowe Price and Fidelity.
According to Villagomez, Vanguard was recommended because it offered the lowest expense ratio and lowest tracking error.
Vanguard would not have responded to an RFP in light of P.L. 17-51, he said. “But because we can buy their shares, just like the others can buy in the open [market], they cannot prevent us from doing it. We are just another institutional investor.”
He added there is a subscription agreement but no contract or negotiation in terms.
The fund’s assets in the portfolio amount to $265.9 million.
