Oct. 10, 2008 — Despite a 40 percent reduction in market value over the last year, the advisor for the Government Employee Retirement System said Friday that between its diversification and long-term strategy, the system should withstand the recent dramatic downturn in the financial markets.
"The key is to maintain discipline with the long-term strategy," Gino Reina told system trustees, some of whom participated from St. Croix via teleconference at the hastily called meeting, held at the GERS conference room on St. Thomas.
Reina pointed out the portfolio had generally earned a 10 percent return over the years.
Several trustees were quick to point out this wasn’t the first financial crisis the system had to weather.
Referring to the late '70s, '80s and early '90s, GERS board vice chairman Raymond T. James said, "Every time the system came back better and stronger than before."
"Because of our asset allocation, we’ve been able to weather these situations in the past," trustee Marvin Pickering said, echoing James’s optimism.
The system’s portfolio, which had a market value of $1.3 billion a year ago against $970 million today, according to GERS administrator Austin L. Nibbs, is split about 50/50 between stocks and bonds.
But James wanted to know if Segal Advisors, Reina’s employers, had any economists working for them and if so what they had to say on the matter.
Reina said Segal did not employ an economist, but said, "I am the director of research."
James said he hoped that the advisors did have a plan, aside from the advice to "stick with" the long-term strategy.
Reina suggested calling an executive session, which eventually happened, to discuss any details of Segal’s strategy — which is proprietary.
Reina took a few minutes at the beginning of the meeting to explain what was happening in the markets that was the cause for such deep and immediate concern. The big problems, he said were related to the sub-prime mortgage loans and the inscrutable "credit default swap," an unregulated insurance on corporate bonds scheme that some indicate may be in the trillions of dollars.
According to Wikipedia, on September 23, Christopher Cox, chairman of the U.S. Securities and Exchange Commission, placed the worldwide CDS market at $58 trillion, and stated it was "completely lacking in transparency and completely unregulated."
Asked if she was worried, trustee Leona E. Smith said during a break from the executive session, "Of course I’m worried — we should all be worried.
"But the market will bounce back," she said.
GERS will hold its regular monthly meeting on Thursday. Trustees indicated they expected to hear more on Segal’s strategy at that meeting.
Carver Farrow was the only trustee not in attendance Friday night. Yvonne E. Bowsky, James Chairman Vincent G. Liger, Desmond L. Maynard, Pickering and Smith were all present.
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