Senate Bill No. 121
(By Senator McCabe)
____________
[Introduced January 14, 2004; referred to the Committee on
Government Organization; and then to the Committee on Finance.]
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A BILL to amend and reenact §12-6-5 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 powers of the investment management board;
extending the powers of the board; increasing the percentage
of equity investments allowed to be held for certain funds;
defining "international security"; specifically expanding the
board's investment authority; limiting the percentage of
assets to be placed in alternative investments; and providing
that the board, in the exercise of its investment decisions,
is conclusively correct unless clearly erroneous.
Be it enacted by the Legislature of West Virginia:
That §12-6-5 and §12-6-12
of the code of West Virginia, 1931,
as amended, be amended and reenacted; and to amend said code by
adding thereto a new section, designated §12-6-18
, all to read as follows:
ARTICLE 6. WEST VIRGINIA INVESTMENT MANAGEMENT BOARD.
§12-6-5. Powers of the board.
The board may exercise all powers necessary or appropriate to
carry out and effectuate its corporate purposes, including, but not
limited to, those powers specifically enumerated in this section.
The board may:
(1) Adopt and use a common seal and alter it at pleasure;
(2) Sue and be sued;
(3) Enter into contracts and execute and deliver instruments;
(4) Acquire (by purchase, gift or otherwise), hold, use and
dispose of real and personal property, deeds, mortgages and other
instruments;
(5) Promulgate and enforce bylaws and rules for the management
and conduct of its affairs;
(6) Notwithstanding any other provision of law, retain and
employ legal, accounting, financial and investment advisors and
consultants;
(7) Acquire (by purchase, gift or otherwise), hold, exchange,
pledge, lend and sell or otherwise dispose of securities and invest
funds in interest earning deposits and in any other lawful
investments, at all times in a manner consistent with the "uniform
prudent investor act" codified as article six-c of chapter
forty-four of this code;
(8) Maintain accounts with banks, securities dealers and
financial institutions both within and outside this state;
(9) Engage in financial transactions whereby securities are
purchased by the board under an agreement providing for the resale
of the securities to the original seller at a stated price;
(10) Engage in financial transactions whereby securities held
by the board are sold under an agreement providing for the
repurchase of the securities by the board at a stated price;
(11) Consolidate and manage moneys, securities and other
assets of the other funds and accounts of the state and the moneys
of political subdivisions which may be made available to it under
the provisions of this article;
(12) Enter into agreements with political subdivisions of the
state whereby moneys of the political subdivisions are invested on
their behalf by the board;
(13) Charge and collect administrative fees from political
subdivisions for its services;
(14) Exercise all powers generally granted to and exercised by
the holders of investment securities with respect to management of
the investment securities;
(15) Contract with one or more banking institutions in or
outside the state for the custody, safekeeping and management of
securities held by the board;
(16) Make and, from time to time, amend and repeal bylaws, regulations and procedures not inconsistent with the provisions of
this article;
(17) Hire its own employees, consultants, managers and
advisors as it considers necessary and fix their compensation and
prescribe their duties;
(18) Develop, implement and maintain its own banking accounts
and investments;
(19) Do all things necessary to implement and operate the
board and carry out the intent of this article;
(20) Require the state auditor and treasurer to transmit state
funds on a daily basis for investment: Provided, That money held
for meeting the daily obligations of state government need not be
transferred;
(21) Upon request of the treasurer, transmit funds for deposit
in the state treasury to meet the daily obligations of state
government;
(22) Establish one or more investment funds for the purpose of
investing the funds for which it is trustee, custodian or otherwise
authorized to invest pursuant to this article. Interests in each
fund shall be designated as units and the board shall adopt
industry standard accounting procedures to determine each fund's
unit value. The securities in each investment fund are the
property of the board and each fund shall be considered an
investment pool or fund and may not be considered a trust nor may the securities of the various investment funds be considered held
in trust. However, units in an investment fund established by or
sold by the board and the proceeds from the sale or redemption of
any unit may be held by the board in its role as trustee of the
participant plans; and
(23) Notwithstanding any other provision of the code to the
contrary, conduct investment transactions, including purchases,
sales, redemptions and income collections, which shall not be
treated by the auditor as recordable transactions on the state's
accounting system.
§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: Provided, That for purposes of the teachers
retirement system and the death, disability and retirement fund of
the department of public safety described in subsections (a)(2) and
(a)(4), section nine-a of this article, such limitation shall be
seventy percent.
(b) The board shall hold in international securities no more
than twenty percent of the assets managed by the board and no more
than twenty 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
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) 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 ten percent of the assets managed
by the board and no more than ten percent of the assets of any
individual participant plan, consolidated fund or any other
endowment or other fund managed by the board, 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 securities,
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
ten percent limitation set forth in this subsection, the percentage
limitations set forth in subsection (a) of this section 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 determinations and interpretations made by
the board with respect to this article including, without
limitation, 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 broaden the authority of
the investment management board. The bill increases the percentage
of equity investments allowed to be held for certain funds and it
limits the percentage of assets to be placed in alternative
investments. The bill provides that the board's decisions on
investments to take advantage of opportunities where prudent to do
so are to be considered correct unless clearly erroneous
.
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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