Retirement fund belongs to retirees, not city hall

I read your editorial of 11/25/98 and felt responsible to respond to it on behalf of the Retirement Fund. First of all, I admire the interest generated on the Fund. It is always healthy to see the other side’s view on issues of mutual concern. But while I share this view, I have reservations on any proposed borrowing from the Fund. First, our statute does not allow more than 15% of the Fund assets to be committed to local investments. And it should not be increased just because it is a statute. This meets our standards of diversification of assets.

We did our share of economic building via financing of the judicial building, the member home loan programs for Fund members, financing of the Government Employees’ Credit Union (least of my favorite but well secured) and the Fund Building. We are already talking about $30 million circulated into our economy through these financial schemes. This has about fulfilled our statutory limit and prudence dictates further increases places the Fund out of alignment in its asset allocation process and may violate the diversification concept of the Board’s investment policies.

The reason it would be difficult to justify lending to the government (although it is the Fund’s sponsor) is its remittance record is not good; contribution payments are untimely, legislation are enacted sporadically that takes away earmarked funds (poker revenue as just one example) destined for the Fund. It would, therefore, be difficult as fiduciaries to extend a loan to someone that is barely making its payment obligations. Any action to the contrary places us in violation of our fiduciary duty. The Fund belongs to the members, not the government.

The other reason why we cannot spread out our investments on the local scene is that we would never get a return of 12% to 33% which we now enjoy in the stock market of the U.S. Again, it is also against basic prudence to invest in one market place. Even among stocks, we cannot own more than five per cent of the shares offered on any given stocks. We have different managers that invest for us, each with his own style and each with different type of stocks from value, growth, mid cap and large cap, etc. We cannot put everything in stocks, 30-40 percent has to be in bond investments, a few in international but most of it are invested in the U.S. stock market, which is the most secure you can get. We do not locally have the financial markets to do any local investing unless one wants a return of 3% from the local banks via CDA investments. The bank would laugh at us, take our money and invest them in the stock markets!

The loan process is a tedious one requiring lengthy due diligence, studies, reports and commissioning of expert advice, deliberations, forecasts and projections, all kinds of collateral, full faith and guarantee from the government (which I call half faith) and a host of other requirements before the Board can make a decision.

You mentioned that we lost $8 million dollars in Asia, but remember we made $40 million in the US markets at about the same time. This is the beauty of asset allocation and mix, one stock can pull you down while the others up. In the end, you will see if you beat the benchmark set and also gauge how your peers fared. So it does not mean that if you lose $8 million that we all failed. You could still beat the benchmark set for the return the Fund sets as the minimum acceptable return.

We are always above our policy year in and year out. We are measured on the whole and that is the standard practice. No one ever beats the market in all their stock investments. The market gyrates and fluctuates so much that it has become unpredictable. That is why we have seven managers whom each manages our Fund money in different styles and stocks. These managers do not perform equally but compliment each other and this is why we are required to allocate and mix our assets.

It may be of interest to you that California Pension & Retirement System (CALPERS) lost $13 billion (yes, that’s billion) dollars at the time we also experienced a significant drop in our return. Everyone went down, but no one was blamed because nobody has control of the stock market. I would not be surprised if the Guam Retirement Fund lost $70 million — maybe more! This is the nature of the game here.

Thank you for sharing your points. It is well taken and I hope this sheds some light for your future articles. I do hope that you continue the faithful efforts to stave off legislation that continue to bind the Fund to incur expenses that are not justified just so that government employees get more benefits than they deserve without contributing a penny! As a retiree, we seek your assistance to come to the defense of the Fund.

V.C. Camacho
Chairman, BOT