Senate Bill No. 361

(By Senators Foster, McCabe, Hunter, Plymale,

Edgell, Fanning, Sprouse and Kessler)

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[Introduced January 27, 2006; referred to the Committee on Finance.]

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A BILL to amend and reenact §12-6-9c and §12-6-12 of the Code of West Virginia, 1931, as amended; and to amend said code by adding thereto a new section, designated §12-6-18, all relating to investment powers of the Investment Management Board; removing certain requirements regarding investments in the securities of any interest in any investment company or investment trust under the Investment Act of 1940; increasing the percentage of investments that may be made in equities in some cases; defining "international securities"; eliminating certain restrictions on the purchase of securities in corporate debt; eliminating the requirement that a list of approved securities be maintained by the board; authorizing investments that are commonly invested in by pension funds similar to the funds managed by the board, subject to certain restrictions and limitations; authorizing the board to enter into market transactions commonly engaged in by pension funds similar to the funds managed by the board, subject to certain restrictions and limitations; and specifying that the investment powers of the board are to be broadly and liberally construed to permit the board to achieve its corporate purposes, consistent at all times with the prudent investor standard.

Be it enacted by the Legislature of West Virginia:
That §12-6-9C and §12-6-12 of the Code of West Virginia, 1931, as amended, be amended and reenacted; and that said code be amended by adding thereto a new section, designated §12-6-18, all to read as follows:
ARTICLE 6. WEST VIRGINIA INVESTMENT MANAGEMENT BOARD.
§12-6-9c. Authorization of additional investments.
Notwithstanding the restrictions which may otherwise be provided by law with respect to the investment of funds, the board, all administrators, custodians or trustees of pension funds other than the board, each political subdivision of this state and each county board of education is authorized to invest funds in the securities of or any other interest in any investment company or investment trust registered under the Investment Company Act of 1940, 15 U. S. C. §80a, the portfolio of which is limited: (i) To obligations issued by or guaranteed as to the payment of both principal and interest by the United States of America or its agencies or instrumentalities; and (ii) to repurchase agreements fully collateralized by obligations of the United States government or its agencies or instrumentalities: Provided, That the investment company or investment trust takes delivery of the collateral either directly or through an authorized custodian: Provided, however, That the investment company or investment trust is rated within one of the top two rating categories of any nationally recognized rating service such as Moody's or Standard & Poor's.
§12-6-12. Investment restrictions.
(a) The board shall hold in equity common stock investments no more than sixty percent of the assets managed by the board and no more than sixty percent of the assets of any individual participant plan, and no more than seventy percent in the case of the Teachers Retirement System and the Death, Disability and Retirement Fund of the Department of Public Safety described in subdivisions (2) and (4), subsection (a), section nine-a of this article or the consolidated fund.
(b) The board shall hold in international securities no more than twenty thirty-five percent of the assets managed by the board and no more than twenty thirty-five percent of the assets of any individual participant plan or the consolidated fund. International security shall be defined as a security, the trading of which occurs neither in whole or in part in United States dollars.
(c) The board may not at the time of purchase hold more than five percent of the assets managed by the board in the equity common stock securities of any single company or association: Provided, That if a company or association has a market weighting of greater than five percent in the Standard & Poor's 500 index of companies, the board may hold securities of that equity common stock equal to its market weighting.
(d) The board shall at all times limit its asset allocation and types of securities to the following:
(1) The board may not hold more than twenty percent of the aggregate participant plan assets in commercial paper. Any commercial paper at the time of its acquisition shall be in one of the two highest rating categories by an agency nationally known for rating commercial paper;
(2) At no time shall the board hold more than seventy-five percent of the assets managed by the board in corporate debt. Any corporate debt security at the time of its acquisition shall be rated in one of the six highest rating categories by a nationally recognized rating agency; and
(3) No security may be purchased by the board unless the type of security is on a list approved by the board. The board may modify the securities list at any time and shall give notice of that action pursuant to subsection (g), section three of this article and shall review the list at its annual meeting.
(e) Notwithstanding the investment limitations set forth in this section, it is recognized that the assets managed by the board, or the assets of the consolidated fund or participant plans, whether considered in the aggregate or individually, may temporarily exceed the investment limitations in this section due to market appreciation, depreciation and rebalancing limitations. Accordingly, the limitations on investments set forth in this section shall not be considered to have been violated if the board rebalances the assets it manages or the assets of the consolidated fund or participant plans, whichever is applicable, to comply with the limitations set forth in this section at least once every six months based upon the latest available market information and any other reliable market data that the board considers advisable to take into consideration.
(f) The board, at the annual meeting provided for in subsection (h), section three of this article, shall review, establish and modify, if necessary, the investment objectives of the individual participant plans as incorporated in the investment policy statements of the respective trusts so as to provide for the financial security of the trust funds giving consideration to the following:
(1) Preservation of capital;
(2) Diversification;
(3) Risk tolerance;
(4) Rate of return;
(5) Stability;
(6) Turnover;
(7) Liquidity; and
(8) Reasonable cost of fees.
(g) In addition to any and all other investment authority granted to the board by this article, the board is expressly authorized to invest no more than thirty percent of the assets managed by the board and no more than thirty percent of the assets of any individual participant plan, or any other endowment or other fund managed by the board, in any one or more classes, styles or strategies of alternative investments suitable and appropriate for investment by the board. A class, style or strategy of alternative investments shall be conclusively deemed to be suitable and appropriate for investment by the board, from time to time, if no fewer than ten other public pension or similar institutional funds based in North America, such as university endowment funds and insurance company investment funds, have made an investment funds have made an investment in such class, style or strategy of alternative investments in the five years preceding the decision of the board to invest in such class of alternative investments. To facilitate access to markets, control, manage or diversify portfolio risk, or enhance performance or efficiency in connection with investments in alternative investments and all other types and categories of investment permitted under this article, the board may enter into commercially customary and prudent market transactions commonly engaged in by other public pension or similar
institutional funds based in North America; Provided, That neither the purpose nor the effect of such transactions is to materially increase market risk or market exposure of the total portfolio of investments under management by the board. The board may invest in alternative investments having a primary or substantial situs in West Virginia if and only if the combined investment of all investors other than West Virginia state, county or local government investors in such alternative investment exceeds the amount of investment by the board in such alternative investment, and the investment otherwise satisfies the requirements of article six-c, chapter forty-four of this code. If the standard confidentiality policies and procedures of any private investment firm through which the board invests in any alternative investment under this subsection prohibit, restrict or limit the disclosure of specific information pertaining to any alternative investment made by the board, information pertaining to such alternative investment shall not be subject to the provisions of chapter twenty-nine-b of this code, but only to the extent required by the standard confidentiality policies and procedures of such private investment firm. The investments described in this subsection are subject to the requirements, limitations and restrictions set forth in this subsection of this section, and the standard of care set forth in section eleven of this article, but are not subject to any other limitations or restrictions set forth elsewhere in this article or code. All determinations made by the board with respect to the characterization of the type or functional nature of any particular investment made pursuant to this subsection shall be given great weight and, unless clearly erroneous, are conclusive.
§12-6-18. Liberal construction; determinations and interpretations by board.

This article, being necessary for and to secure the public health, safety, convenience and welfare of the citizens of this state, shall be liberally construed to effect the public purposes of this article. The powers granted to the board in this article, including, without limitation, those granted in section five of this article, are intended to be broad and shall be construed broadly so as to vest in the board the power and authority necessary or appropriate to carry out and effectuate its corporate purposes in the financial markets of the world, as the same may evolve from time to time. The powers specifically enumerated in section five of this article are representative and not restrictive, and in all instances such powers are to be broadly construed so as to permit the board to take all reasonable, necessary or appropriate actions and to engage in all commercially customary investment transactions and activities consistent with or necessary or appropriate to achieve its corporate purposes, at all times in a fashion consistent with the prudent investor standard. The determinations and interpretations made by the board with respect to this article, including, but not limited to, the determinations and interpretations made by the board with respect to the characterization of the type or functional nature of any particular investment made pursuant to this article, shall be given great weight and, unless clearly erroneous, are conclusive.
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(NOTE: The purpose of this bill is to permit the West Virginia Investment Management Board to invest in a more diverse universe of investments, thereby enhancing the safety of the assets under management while enabling the board to better achieve its return objectives as markets evolve from time to time, at all times in a manner consistent with the prudent investor standard. The bill relaxes certain existing investment restrictions; permits investment in alternative investments that are commonly invested in by other, similar pension funds; permits market transactions that are commonly engaged in by other similar pension funds; and provides that the investment powers of the board are to be liberally construed to permit the board to achieve its corporate purposes, at all times in a manner consistent with the prudent investor standard.

Strike-throughs indicate language that would be stricken from the present law, and underscoring indicates new language that would be added.

§12-6-18 is new; therefore, strike-throughs and underscoring have been omitted.)
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FINANCE COMMITTEE AMENDMENTS


On page five, section twelve, line one, after the word "board" by striking out the words "or the assets of the consolidated fund";
On page five, section twelve, line twelve, after the word "consideration" by adding the following: "except for those assets authorized by subsection (g) for which compliance with the percentage limitations shall be measured at such time as the investment is funded";
On page six, section twelve, line six, after the word "assets" by inserting a comma and adding the following: "as measured at the time of the investment,";
And,
On page six, section twelve, line seven, after the word "assets" by inserting a comma and adding the following: "as measured at the time of the investment,".