Senate Bill No. 46
(By Senators Foster, Sharpe and Plymale)
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[Introduced January 10, 2007; referred to the Committee on
Pensions; and then 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 except for those assets authorized by
subsection (g) of this section for which compliance with the
percentage limitations shall be measured at such time as the
investment is funded
.
(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, as
measured at the time of the investment, managed by the board and no
more than thirty percent of the assets, as measured at the time of
the investment, 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 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 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.
NOTE: The purpose
of this bill is to give the West Virginia
Investment Management Board flexibility when making investments.
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.