‘Investment consultant, money managers likely to cancel contracts’

The NMI Retirement Fund and its board of trustees are urging Gov. Benigno Fitial to veto the shareholder derivative act bill that was passed by both the House and the Senate last week.

Approval of the measure, they said, would result to the cancellation of the Fund’s existing contracts and could lead to $9 million in potential losses in its investment portfolio every year.

In a letter to the governor on Thursday, Fund administrator Richard Villagomez reiterated the damaging effects of Senate Bill 17-43 which was approved by lawmakers disregarding all important concerns raised by the Fund. The measure allows beneficiaries of trusts and retirement fund programs to take legal action on behalf of trusts or the NMI Retirement Fund when trustees who manage them refuse to bring such actions.

If it becomes law, Villagomez said the Fund’s cost of doing business would increase due to added litigation.

He revealed that investment consultant and money managers will likely cancel their contracts with the Fund because of additional risk of potentially being sued by people not parties to the contract.

“If no firm is willing to contract with the Fund to manage its assets, the Fund would be forced to liquidate its portfolio and move those funds to savings accounts or certificates of deposits. The estimated opportunity cost of being out of the market for an extended period is $9 million per year,” he told the governor, adding that if the bill becomes law it will damage the reputation of the CNMI which will be perceived as being a hostile business environment. This may also result to increase cost of some services such as Group Health or Life Insurance because more than likely, they will reconsider contracting with the Fund and if they do, they may very well increase their costs.

The administrator also cited some specific objections to the legislation as written such as the uneven retroactive application. He said the retroactivity of laws is generally disfavored and not applicable unless expressly provided. He was alluding to section 5 of the bill which provides that the act shall be applied to pending actions, already filed in court. Additionally, he said retroactive application of the law may lead to an impairment of the obligation of contract which is prohibited by law.

“This bill, if enacted, will make it very difficult for the Fund to find any party that would be willing to enter into a contract, because the party would be responsible, not only for satisfying the board of trustees, but all 20,000 potential intended beneficiaries of the Fund,” said Villagomez, adding that the high risk of potential litigation would discourage any firm from entering into a contract with the Fund.

The administrator described the derivative act as a special interest legislation that should not have been entertained by the Legislature.