Fund considers moving cash investments to mutual funds

The NMI Retirement Fund board has authorized administrator Richard Villagomez to investigate how mutual fund companies work as it considers options on where to move its cash investments.

During Thursday’s emergency meeting, board trustee Adelina Roberto disclosed that the Fund has $100 million in cash sitting with the Fund’s custodian, Bank of Hawaii. These were assets the Fund liquidated from money managers whose contracts were terminated.

The amount, according to Villagomez, is earning only about 1 percent, which is small compared to investing it in the market, which has a projected return of between 4.3 and 4.4 percent, based on the Fund’s new asset allocation model.

With the cash just sitting with the custodian, Villagomez estimates the income opportunity loss for the Fund to reach $9 million a year.

The signing into law of the beneficiary derivative act this week has already resulted in two money managers terminating their contracts with the Fund. The remaining money managers and the Fund’s investment adviser-Wilshire Associates-are expected to follow suit.

Villagomez told the board that the Fund must also plan for the worst-case scenario-if the custodian decides to withdraw its services with the Fund.

“We haven’t heard from them [Bank of Hawaii] but the worst-case scenario is if the custodian drops us,” said Villagomez, adding that exploring a mutual fund company is part of preparations for these situations.

“I would like to discuss the possibility of getting a mutual fund company so we can invest the cash and earn more than 1 percent and this was recommended by the investment consultant even before the bill became law-in case our money managers quit and we cannot contract other [replacements],” he explained.

Because mutual funds basically involve buying shares, Villagomez said that mutual funds are not subject to the beneficiary derivative law, which covers firms and companies that have contracts with the Fund.

“With mutual funds, we should be able to find strategies to allow us to completely fill the new allocation that we’re transitioning to,” said Villagomez.

Wilshire has already expressed its intention to end its relationship with the Fund because of the new law. However, it was asked to stay on, with the condition that the board will consider bringing the matter of the beneficiary derivative law to court.

Villagomez said that if Wilshire terminates its contract, the Fund will likely not get a replacement.

The possibility of hiring an in-house investment consultant-or within the island-is also remote because Public Law 6-17, which created the Fund, clearly outlines the minimum criteria and requirement for an investment consultant, which, among others, is that it must have advised clients with at least $200 million in market value.

“We cannot hire in-house to fulfill that role,” said Villagomez.