‘Fund will turn into retail investor’

If the 10-day-old Beneficiaries Derivative Law is not repealed, the NMI Retirement Fund will lose all its institutional money managers and with that its access to the institutional investment community.

Former investment consultant Wilshire Associates said the end result of this is the Fund turning into only a retail investor.

The present issues, she said are creating a negative effect for the Fund’s future endeavors.

“As of now, the Fund has lost [or been put on notice by] all of its institutional managers. Going forward, if Public Law 17-51 is not repealed, Wilshire Associates expects the Fund will not be able to access the institutional investment community, but can only invest like a retail individual investor in the mutual fund space,” she said.

Ralbovsky admitted that Wilshire Associates suggested to the Fund to consider investing in mutual funds given that no institutional managers will be willing to enter into contracts.

She revealed that mutual funds are generally designed for retail investors and tend to be more expensive, and provide lower levels of service than institutional managers.

Ralbovsky explained how mutual funds work: “Generally speaking, all things being equal [meaning comparing same asset classes and same risk levels], mutual funds are on average 0.25 percent more expensive than institutional managers. Higher expenses mean lower returns, all things being equal.”

According to Ralbovsky, as soon as Wilshire Associates was engaged as Fund consultant, the board of trustees worked very hard to review new asset allocation studies, issue new RFPs, and select new investment managers with a goal to re-position the investment program to address the many challenges the Fund is facing.

Given the challenge of a short investment horizon and low-risk tolerance as well as the needs to generate return to pay pension benefits, the Fund approved a new strategy called “glidepath.”

But to implement this new strategy, all managers need to work as a group around anchor passive manager BlackRock Inc., which resigned last week. Wilshire Associates admitted the “glidepath” is now un-implementable due to the firm’s resignation.

It was also revealed that Stralem and Company and Fisher Investments, money managers that also terminated services with the Fund, are the only equity managers and their resignation further jeopardize the investment program. As of yesterday, six firms have already ended their relationship with the Fund, including Wilshire Associates.

Wilshire Associates said it will continue to serve the Fund until Oct. 8 and that it reserves the right to reconsider if the law gets repealed before that date. However, after Oct. 8, even if the law is repealed, the Fund may need to re-issue RFPs for a new investment consultant because of the procurement law.