COMMITTEE SUBSTITUTE
FOR
Senate Bill No. 121
(By Senator McCabe)
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[Originating in the Committee on Government Organization;
reported February 26, 2004.]
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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 the investment powers of the investment management
board; removing certain requirements regarding investments in
the securities of or any interest in any investment company or
investment trust under the investment company act of 1940;
increasing the percentage of investments that may be made in
equities and international securities; clarifying the
application of the prudent investor standard to limitations on
certain types or amounts of investments;
eliminating certain
restrictions on the purchase of securities in a particular
company, commercial paper and corporate debt and eliminating
the requirement that a list of approved securities be
maintained by the board; authorizing investments in
alternative investments, 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, 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 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 or
the consolidated fund
or the consolidated fund and no more than
seventy percent in the case of the teachers retirement system and
the death, disability and retirement fund of the division of public
safety described in subsections (a)(2) and (a)(4), section nine-a
of this article, such limitation shall be seventy percent, or such
higher percentages as may be permissible or appropriate for all
such investments under this subsection under the prudent investor
standard set forth in section eleven of this article.
(b)
The board shall hold in international securities no more
than thirty-five twenty percent of the assets managed by the board
and no more than thirty-five twenty percent of the assets of any
individual participant plan or the consolidated fund. or such
higher percentages as may be permissible or appropriate under the
prudent investor standard set forth in section eleven of this
article. 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 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 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) (c) 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) (d) 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) (e)
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 forty percent of the assets
managed by the board and no more than forty percent of the assets
of any individual participant plan or any other endowment or other
fund managed by the board, or such higher percentages as may be
permissible or appropriate under the prudent investor standard set
forth in section eleven of this article, in any investment
commercially recognized as an alternative investment
as determined
by the board, from time to time, which alternative investments may
include, but are not limited to, the following: Venture capital,
mezzanine debt, buyout funds, private real estate, publicly traded
real estate, long/short strategies, market neutral strategies,
distressed securities and fixed income arbitrage and any investment
determined by the board to be similar to one or more of the
foregoing types of investment. The investments described in this
subsection are not subject to any limitations or restrictions set
forth in this article or elsewhere
in the code except for the
forty-percent limitation set forth in this subsection and the
standard of care set forth in section eleven of this article. The
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 full and complete 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 and 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 broaden the investment
authority of the West Virginia investment management board, to
permit it to invest in a more diversified universe of investments so as to better achieve its return objectives while maintaining
appropriate diversification of its investment portfolio, at all
times in a manner consistent with the prudent investor standard.
The bill increases or removes certain percentage limitations on
certain types of investments; permits investment in alternative
investments, subject to certain restrictions and limitations; 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 two, section nine-c, line eighteen, by striking out
the words "is authorized to" and inserting in lieu thereof the word
"may";
On page three, section twelve, line fourteen, by striking out
the comma and the words "such limitation shall be seventy
percent,";
On page three, section twelve, line fifteen, by striking out
the word "such" and inserting in lieu thereof the word "any";
On page three, section twelve, line fifteen, by striking out
the words "as may be" and inserting in lieu thereof the words "that
are";
On page three, section twelve, line sixteen, by striking out
the word "such";
On page three, section twelve, line twenty-two, by striking
out the words "may be" and inserting in lieu thereof the word
"are";
On page six, section twelve, line eleven, after the words "to
time" by striking out the comma and the words "which alternative"
and inserting in lieu thereof a period and the word "Alternative";
On page six, section twelve, line seventeen, by striking out
the words "the foregoing" and inserting in lieu thereof the word
"these";
On page seven, section eighteen, lines ten and eleven, by
striking out the words "the same" and inserting in lieu thereof the
word "they";
And,
On page seven, section eighteen, line thirteen, by striking
out the word "such" and inserting in lieu thereof the word "the".