Expressing his own personal opinion and responding to a Rotarian’s inquiry, MPLT board chairman Alvaro A. Santos on Tuesday said, “Personally, I think that they should have adopted the glidepath concept much, much earlier. Why—because they have a fixed obligation every 15 days to the pensioners.”
He said, “It’s nice to be engaged in high yield, aggressive equity market. If the market is very volatile, I don’t think you want to venture into that kind of environment and take a chance while you have a steady obligation every 15 days.”
He said the Fund’s asset allocation should have been more conservative.
Citing as example his meeting with their “Micronesian friends,” Santos said the Social Security took a beating in 2008 — the same year that MPLT lost $7 million in the market — because the allocation was 90-10: 90 percent in equities, and 10 percent in fixed income.
For Santos that was a very aggressive investment and risky exposure.
“When the final crisis came around, it hit them like a huge tsunami. That was a big gamble,” he said.
As for the Fund, he wished it had explored the glidepath strategy much earlier.
Under the guidance of its former investment consultant Wilshire Associates Inc. the Fund board decided to adopt a glidepath investment strategy.
Believing that the Fund had too short an investment horizon to work with, Wilshire managing principal Maggie Ralbovksy recommended for the board to proceed to adopting a glidepath strategy anchored on BlackRock being the most important money manager.
In the glide path approach, the $100 million that now sits with the custodian Bank of Hawaii, should have been allocated for four asset classes in the new asset allocation: U.S. equity, international equity, fixed income, and liquidity.
Half of the $100 million would be kept liquid or in cash.
The Fund now is transitioning into an all-cash portfolio converting its $264 million into cash to be deposited in Certificate of Deposit Account Registry Service network of financial institutions.
As for MPLT, Santos said, with the tremendous volatility in the market, “We slowed our growth and concentrated more on yield, a steady stream of yield so we could meet our obligation to the central government.”
“In the meantime we want to be conservative and make sure that we insulate ourselves from the tremendous volatility of the market.”
MPLT’s investment consultant is Morgan Stanley Smith Barney which has an office on Guam.
