Author: Priana Andreas

FSMSSA Board of Trustees held its 2nd Regular meeting of the year beginning April 28-29, 2017. The Board of Trustees’ meetings usually took place in the four states interchangeably, for the need of appeal case hearings and other businesses relating to the system’s needs. This quarter’s meeting was held in Pohnpei as the need to appeal hearings arose. The present Board members included Chairman Jack Harris representing Pohnpei State, Vice Chairman Vincent Tafileluw of Yap, representing Chuuk State Trustee Nakama Sana and Ex-Officio member Administrator Alexander R. Narruhn. As of date, Kosrae and National Government representatives are both vacant. Other attendees included Deputy Administrator and  investment consultant Daniel Roland, Managing Director of Raymond James. Consultant Roland was present for the investment review for FSMSSA, where he presents to the Board the status of the program financially and advised on money manager’s statuses and so forth. He did updates on these managers to make sure the program is in good hands regards to its finances. The Board as well entertained four pending appeal cases during its meeting. They then had the chance to come to their conclusions on each case. With the process, the appellants appeared in front of the Board to deliver their testimonies including some questioning from the Board members and with all the information gained and gathered, finally they could make decisions on the cases either to hold, deny or uphold decisions. This time the cases were taken care of and the meeting moved forward with reports and updates from the Admin. In its financial reports, Comptroller Tessie Dayao provided the presentation based on a comparison of two years 2015 vs. 2016. At the year ending 2016, net asset stood at $50,291,125 with a difference of $570,633 compared to 2015 which was $49,820,000. This amount consisted of 89% of the investment market value which is $44,818,947 and 11% consists of the accounts receivables and other accounts. Liabilities reduced at $181,000 which consists of payables to vendors, payroll liabilities and payables to beneficiaries.  As for collections $18,638,211 is an increase of 5.5% in 2015 with $17,674,000. The reason for the increase was based on an analysis made, which included the more new employers currently paying into the system compared to the previous year, meaning employers were paying more on their taxes that time. The second factor in the increase in collection of delinquent quarters increased by 90%. The 5.5% growth rate of 2016 may not be sustainable. Collections for first quarter 2016 increased, yet compared to first quarter 2017, it was flat, no increase. It was $4,660,000. there were new employers in 2016 that contributed about $16,000. Benefits increases by 3.5% to 19,906,488. the growth rate is 3.5% as compared to the previous year of 1.3%, so benefit is getting higher again. Total number of beneficiaries increased as of 2016 which equals to 6,473.  Admin expense was reduced by $34,397 or 2.8% reduction. The Board was again updated on the financial status of FSMSSA and the meeting carried on. In conclusion, the Board members each shared their remarks from their respective states including concerns from their people. Chairman thanked everyone for the effort in making to the meeting and appreciated all the work done throughout the hectic days.

    Jack Harris, Chairman, Board of Trustees, FSM Social Security, accompanied by FSMSSA Administrator Alexander Narruhn, and Daniel Roland, Managing Director of Raymond James, investment consultant to FSMSSA, conducted a series of due diligence review meetings at the home offices of service providers in the U.S. Visited were three of the investment advisors currently retained by FSMSSA; the FSMSSA investment consultant; and, the consulting actuary. The due diligence visits were held from Friday June 2, 2017, through Tuesday, June 6, 2017 and was convened at the Oakland, California offices of Adelante Capital Management (ACM). ACM has managed a Real Estate Investment Trust (REIT) portfolio for FSMSSA since 2015. In attendance from ACM were Michael Torres, CEO, Adelante Capital Management; Jeung Hyun, Portfolio Manager, Adelante Capital Management; and, Thomas Budinger, Vice President, Adelante Capital Management. A number of issues were discussed, including the historical performance of the FSMSSA Trust Fund account managed by ACM; the future outlook for REIT’s; and, among other things, the status of ACM as an ongoing firm. Mr. Roland questioned why since 2008, firm assets had declined substantially. The ACM’s response was that it was directly a result of the 2008 global financial crisis and the resulting flight to safe havens, such as bonds. In ACM’s case, it was exacerbated by their client base being highly concentrated in large public funds. They also met with Tortoise Capital Advisors, LLC ((TCA), whom has managed a Master Limited Partnership (MLP) portfolio for FSMSSA since 2015. As with ACM, the review began with a presentation on historical performance, and the outlook for the future. The fact that MLP price fluctuations were wildly disproportionate to their underlying valuations based on cash flow was discussed in-depth. It was noted that the prices more recently have been highly correlated to spot oil prices, and not reflective of the underlying yields and future income growth. TCA mentioned that large institutional investors had been adding to their MLP exposure since the steep drop in prices. The next sets of meetings held were with Robert Burns, Director, Institutional Consulting Services; and, Griffin Suit and Jake Norris of Asset Management Services. They addressed the performance reporting, asset allocation and investment manager research functions they are responsible. Of key concern to the Administrator were the occurances in custody reporting with respect to following month adjustments. Mr. Burns indicated that this would occur, infrequently, when correcting data was received after statements were generated. Possible scenarios to address this were discussed, to include delaying statements for several days, as well as upgrading reporting to the Clearwater System. Finally, on Tuesday, June 6^th, a due diligence meeting was held with Jonathan Cangelosi, Principal, of Golden Capital Management (GCM). GCM has managed small/mid cap equity portfolio for FSMSSA since 2008. After addressing performance of the portfolio, which was deemed acceptable, the discussion centered about the possible effects that might occur due to the purchase of the remaining shares of Golden Capital not only held by Wells Fargo. Mr. Cangelosi was insistent that there should be no negative impact as all principal investment professionals were tied to the firm by contract, and that Wells Fargo had no intention of involving itself in the investment management process. The rest of the meeting was discussions with the actuary, Joe Nichols, about cost statements needed for the upcoming proposed legislation and ways in which the benefit formula can be amended to help place the fund in a more sustainable state. They as well discussed the contract and timing of the next actuarial valuation and an experience study, which its main function is to examine the mortality experience of FSM and from that, to build the mortality table used in their calculations.  At the conclusion, the Chairman made it clear that FSMSSA would continue to watch developments closely.

Administrator Alexander R. Narruhn and Deputy Administrator Francky Ilai  attended  the Asia Pacific Association for  Fiduciary Studies (APAFS), a non-for-profit educational and charitable association dedicated to helping fiduciaries to gather, grow, and protect assets being managed by providing the education to make better investment and business decisions. Its flagship event, the Pacific Region Investment Conference (PRIC), is widely considered a premier event in the Asia-Pacific region for fiduciaries seeking insights from industry experts from around the globe and building a network of like-minded professionals. Upon attending APAFS this year, FSMSSA recognizes Administrator Narruhn for achieving his certification of Master AIF and for currently being a member of Board of Governor’s on APAFS. Moreover, recognition also goes out to Deputy Ilai for his AIF Designation, which he had passed with an overwhelming success.  With the more knowledge and skills gained, FSMSSA  trusts in its longevity.  Congratulations Gentlemen for the success, which is believed to be a benefit to the system and its people.