In an email to Variety, Wilshire Associates managing principal Maggie Ralbovsky said, “The Fund is not currently following the glidepath strategy and CDs were never part of the glidepath.”
Ralbovsky said pension funds almost never invest in CDs which she said are for individuals.
With the Fund unable to get a preliminary injunction to PL 17-51 and no political solution is in sight that could convince Wilshire to overturn its decision, the Fund board decided during its Oct. 13 emergency meeting to leapfrog to a more conservative and modified asset allocation called Modified Glide Path 2013.
Wilshire remained as consultant until Oct. 12.
In the interim, as the Fund still looks for an investment consultant, it chose to liquidate its assets and the Fund board authorized the use of Certificate of Deposit Account Registry Service.
In a memo dated Oct. 13 by Fund Administrator Richard Villagomez to Fund board chairman Sixto Igisomar and the trustees, anticipating that the Fund would not have an investment consultant owing to its failure to get a preliminary injunction to PL 17-51 that would have convinced Wilshire to overturn its decision not to leave, Villagomez stated that the prudent response was to transition the portfolio to an ultra-conservative position. He said it’s an all-cash portfolio within FDIC insurance maximum of $250,000 per account.
Villagomez told the trustees in that letter that Wilshire recommended the use of CDARS to facilitate the transition into FDIC insured accounts.
Ralbovsky clarified Wilshire’s position.
“Wilshire did not recommend the fund to invest only in CDs — that was a decision the Fund made based on their legals’ opinion that without a consultant, they can only buy FDIC insured CDs. We therefore recommended CDARS after they made that decision,” Ralbovsky said.
The former Fund consultant told Variety that their original recommendation was to have the Fund stick to the glidepath which at this point should be Glidepath 2012.
Ralbovsky pointed out that “Our 2013 strategy was NOT investing in CDs.”
She explained that Glidepath 2012 originally had Blackrock, Stralem, Fisher, Franklin [Templeton], Richmond and PIMCO as managers.
With the passage of the beneficiary derivative lawsuit law in September, Blackrock’s contract self-terminated, and Stralem and Fisher resigned.
Ralbovsky said the 2012 target was revised to have Vanguard, PIMCO, Franklin and Richmond as managers.
“Had we stayed on, the revised 2012 target would have been the investment strategy for the Fund. Then, the glidepath strategy calls for a gradual transition into the 2013 target with Vanguard and Richmond as the final managers,” Ralbovsky said.
The Fund, meanwhile, cannot operate without an investment adviser as mandated by PL 6-17.
Villagomez told the trustees in his memo that fiduciary standards and CNMI law requires the Board to have a qualified investment consultant to assist the Fund in managing its investments.
During its Oct. 13 emergency meeting the Fund board reviewed three scenarios, reducing the risk of portfolio immediately due to lack of investment advice on managing risk and transitioning to cash accounts as quickly as possible.
Scenario A called for scrapping Glidepath 2012 and moving to Glidepath 2013 with no additional allocation to Richmond. While securing cash option under CDARS, the Fund would simultaneously issue a request for proposal for investment consultant.
Based on Villagomez’ memo, transitioning to CDARS would halt once the Fund gets a new investment consultant and it will in turn follow the new consultant’s recommendation.
Scenario B, according to the same memo, called for immediate and full liquidation of portfolio with the cash to be held by custodian Bank of Hawaii and secure cash option with CDARS. At the same time issue RFP for consultant.
The second scenario called for the transfer of cash at maximum constraint allowed to enter CDARS within FDIC maximum.
Scenario C would be following either Scenario A or B but using T Bills or ultra short bond mutual funds with BOH as broker if there were no legal issues.
According to Villagomez, Wilshire recommended Scenario A.
Villagomez said Wislhire suggested Scenario A as “by far the best plan.”
Given the uncertainty of Richmond’s reaction at the time and it being more expensive than Vanguard, Wilshire, Villagomez said, recommended that it might be prudent to plan ahead without Richmond in the portfolio.
The Fund was advised to keep PIMCO because it’s similar in style to Richmond and is a mutual fund.
Villagomez also said Wilshire further suggested placement into the FDIC program starts with Tranche A first, then use liquidity from PIMCO for further placement in Tranche B with benefit payouts to come from PIMCO in Tranche B.
The Fund approved liquidation of assets with Templeton and Richmond, adopted Glidepath 2013 — conservative transitional portfolio — until the pension agency is able to secure relationship with CDARS service providers or until the Fund gets a new investment consultant.
As of Oct. 11, the Fund had $264,564,293 based on unaudited report.
