Fixed-income managers pitching for Guam mandate

Bond fund managers based in Hong Kong and Singapore are now pitching for a mandate from the $1.2 billion Government of Guam Retirement Fund.

Guam is a protectorate of the United States and a roughly four-hour flight east of Hong Kong into the Pacific. It has two main industries, tourism - the scuba diving is good - and government. Although many of the US fund managers fighting for the business may have learned about the mandate from headquarters, the top brass have passed responsibility to Asia due to proximity. Or as one marketing exec at a US firm in Singapore put it, "The guys in the States asked me, 'What part of China is Guam in?'"

The government's retirement fund manages its fixed income in three tranches based on maturity, and is now seeking a manager for a $250 million portfolio of intermediate tenors. Those managers that don't divide their portfolios so narrowly have had to take a pass on bidding for this deal. Proposals were due on Tuesday the 12th.

The government administers three retirement plans for government employees. There is a defined benefit plan dating back to 1951, a defined contribution plan from 1995 and a deferred compensation plan established in 1998. The fixed-income mandate is for the DB plan, which covers about 6,400 employees and 6,500 retirees, and was closed to new members when the DC plan was set up. Although in decline, it still has a lot of assets to manage and existing members will kick in around $95 million of contributions this year.

The winner may face unusual restrictions on how the money is invested. Guam's guidelines have been in place since 1952, with more modern investment practice standards not yet imposed. The Guam legislature may soon enact rules adopting the Prudent Investor rule, however.

Fund managers say Guam is not using an investment consultant, and that the pension fund's trustees are sophisticated and ask all the smart questions.