“All of the firms that have contracted with the Fund have either already quit or intend to quit. There is no one left,” Fund administrator Richard Villagomez told Variety on Friday.
The Fund is urging lawmakers to pass House Bill 17-220 which will repeal the controversial derivative beneficiary lawsuit act or P.L. 17-51.
Villagomez said the Fund has been very straightforward in explaining the damaging effects of P.L. 17-51. “Even the investment consultant no longer wants to do business with us.”
Wilshire Associates Inc. managing principal Maggie Ralbovsky, in an interview with Variety on Thursday night, said, “If they do not repeal the law, the only investment program the Fund can put together is with mutual funds, because no institutional managers will be willing to enter into contracts” with the pension agency.
She added, “If the Fund buys mutual fund shares, it basically invests like a retail investor, and the law will lose its teeth, since these mutual funds won’t have a separate contract with the Fund and the beneficiaries won’t really be able to sue the mutual funds like they can the institutional managers.”
She said if the purpose of the law is to improve the investment program and increase accountability, the result is the exact opposite.
Ralbovsky also clarified that the Fund did not have too many money managers or even eight or more managers as claimed by the lawyers of the retirees who sued Merrill Lynch, the Fund’s former investment consultant, and have lobbied for the enactment of P.L. 17-51.
Based on Wilshire’s recommended strategy, the Fund has four money managers and two mutual funds.
But the enactment of P.L. 17-51 exposes these managers and Wilshire to frivolous lawsuits and increases the cost of doing business with the Fund.
All four money managers, Wilshire and actuary Buck Consultants have already decided to give the Fund 30-day notice. Two mutual funds have indicated intent to follow suit.
Buck Consultants principal Dylan Porter, in his Sept. 12 letter to the Fund, said “the law is out of step with our industry, as the other service providers of the Fund have observed.”
Julia K. Bonafide, president of Wilshire Consulting, told Fund Board Chairman Sixto K. Igisomar in a Sept. 9 letter that the “legislation that allows beneficiaries to override the terms of the agreement as negotiated by the board of trustees of the Fund, it impacts the board’s ability to perform its obligations under the agreement.”
Stralem & Co. Inc. president Hirschel B. Abelson wrote on Aug. 23 to the governor said the measure should have been renamed “The Lawyers Full Employment Bill” as attorneys will have a field day as beneficiaries can file lawsuits for whatever they believe have harmed the Fund.
As of Aug. 2011, the Fund had approximately $271 million in assets.
Recently, Superior Court Judge Kenneth Govendo ruled that the Fund reserve $100 million for the retirees in the event of the Fund’s demise.
Fin Daily, circulated among professionals in the U.S. institutional asset management community, has picked up the news on the enactment of PL 17-51 in the CNMI and it may now prove difficult for the Fund to look for any money manager or investment consultant unless the law is repealed.
