ENROLLED
Senate Bill No. 438
(By Senators Foster, McCabe, Edgell, Plymale,
Hall and McKenzie)
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[Passed March 10, 2007; in effect ninety days from passage.]
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AN ACT to
amend and reenact §12-6-2, §12-6-4, §12-6-9c, §12-6-12
and §12-6-14 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 of moneys by
the West Virginia Investment Management Board; modifying the
type and amount of bonds or insurance coverage that may be
obtained and maintained by the Investment Management Board;
authorizing the establishment and maintenance of a self-
insurance account in connection with the procurement and
maintenance of insurance coverage by the Investment Management
Board; modifying provisions relating to authority of the board
to make certain investments in investment companies or
investment trusts registered under the Investment Company Act
of 1940; modifying restrictions and limitations on permissible
investments by the West Virginia Investment Management Board; authorizing investment in real estate investment funds and
alternative investment funds and establishing conditions and
limitations on the same; providing an exemption from
disclosure under the Freedom of Information Act with respect
to information concerning which disclosure is prohibited,
restricted or limited by standard confidentiality agreements,
policies or procedures of firms, companies or organizations
through which the West Virginia Investment Management Board
invests, to the extent of the prohibitions, restrictions or
limitations; requiring certain additional information be part
of the Investment Management Board's annual report; providing
authority for the Legislature to commission or direct audits,
reviews and studies as it considers necessary; and specifying
that the provisions of the article are to be liberally
construed to effect the public purposes of the article.
Be it enacted by the Legislature of West Virginia:
That §12-6-2, §12-6-4, §12-6-5, §12-6-9c, §12-6-12 and §12-6-
14 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:
CHAPTER 12. PUBLIC MONEYS AND SECURITIES.
ARTICLE 6. WEST VIRGINIA INVESTMENT MANAGEMENT BOARD.
§12-6-2. Definitions.
As used in this article, unless a different meaning clearly appears from the context:
(1) "Beneficiaries" means those individuals entitled to
benefits from the participant plans;
(2) "Board" means the governing body for the West Virginia
Investment Management Board and any reference elsewhere in this
code to board of investments or West Virginia Trust Fund means the
board as defined in this subdivision;
(3) "401(a) plan" means a plan which is described in section
401(a) of the Internal Revenue Code of 1986, as amended, and with
respect to which the board has been designated to hold assets of
the plan in trust pursuant to the provisions of section nine-a of
this article;
(4) "Local government funds" means the moneys of a political
subdivision, including policemen's pension and relief funds,
firemen's pension and relief funds and volunteer fire departments,
transferred to the board for deposit;
(5) "Participant plan" means any plan or fund subject now or
hereafter to subsection (a), section nine-a of this article;
(6) "Political subdivision" means and includes a county,
municipality or any agency, authority, board, county board of
education, commission or instrumentality of a county or
municipality and regional councils created pursuant to the
provisions of section five, article twenty-five, chapter eight of
this code;
(7) "Trustee" means any member serving on the West Virginia Investment Management Board:
Provided, That in section nine-a of
this article in which the terms of the trusts are set forth,
"trustee" means the West Virginia Investment Management Board;
(8) "Securities" means all bonds, notes, debentures or other
evidences of indebtedness and other lawful investment instruments;
and
(9) "State funds" means all moneys of the state which may be
lawfully invested except the "school fund" established by section
four, article XII of the state constitution.
§12-6-4. Management and control of fund; officers; staff;
fiduciary or surety bonds for trustees; liability of
trustees.
(a) The management and control of the board shall be vested
solely in the trustees in accordance with the provisions of this
article.
(b) The Governor shall be the chairman of the board and the
trustees shall elect a vice chairman who may not be a
constitutional officer or his or her designee to serve for a term
of two years. Effective with any vacancy in the vice chairmanship,
the board shall elect a vice chairman to a new two-year term. The
vice chairman shall preside at all meetings in the absence of the
chairman. Annually, the trustees shall elect a secretary, who need
not be a member of the board, to keep a record of the proceedings
of the board.
(c) The trustees shall appoint a chief executive officer of
the board and shall fix his or her duties and compensation. The
chief executive officer shall have five years' experience in
investment management with public or private funds within the ten
years next preceding the date of appointment. The chief executive
officer additionally shall have academic degrees, professional
designations and other investment management or investment
oversight or institutional investment experience in a combination
the trustees consider necessary to carry out the responsibilities
of the chief executive officer position as defined by the trustees.
(d) The trustees shall retain an internal auditor to report
directly to the trustees and shall fix his or her compensation.
The internal auditor shall be a certified public accountant with at
least three years' experience as an auditor. The internal auditor
shall develop an internal audit plan, with board approval, for the
testing of procedures and the security of transactions.
(e) The board shall procure and maintain in effect
commercially customary property, liability, crime and other
insurance to cover risks of loss from its operations. The types
and amounts of the insurance coverages shall be determined by the
board, from time to time, in its reasonable discretion, with
reference to the types and amounts of insurance coverages purchased
or maintained by other public institutions performing functions
similar to those performed by the board:
Provided, That the board
shall purchase a blanket bond for the faithful performance of its duties in the amount of at least ten million dollars. The board
may require that appropriate types and amounts of insurance be
procured and maintained by, or a fiduciary or surety bond from a
surety company qualified to do business in this state for, any
person who has charge of, or access to, any securities, funds or
other moneys held by the board and the amount of the fiduciary or
surety bond shall be fixed by the board. The premiums payable on
any insurance or fiduciary or surety bonds that the board may
require, from time to time, shall be an expense of the board. In
connection with the duties of the board under this subsection, the
board may establish, fund and maintain a self-insurance account.
If established, the board shall deposit and maintain moneys in the
self-insurance account in amounts as may be determined by the board
in consultation with one or more qualified insurance or actuarial
consultants, and all moneys in any self-insurance account may be
used only for the purpose of providing self-insurance, establishing
reserves in connection with insurance deductibles, self-insured
retentions or self-insurance, or helping to defray the costs of
insurance procured under this subsection, and for no other purpose.
The board may procure any and all insurance coverages and bonds
deemed appropriate by the board or required by the provisions of
this article, either through the state Board of Risk and Insurance
Management or in the commercial markets, in the discretion of the
board.
(f) The trustees and employees of the board are not liable personally, either jointly or severally, for any debt or obligation
created by the board:
Provided, That the trustees and employees of
the board are liable for acts of misfeasance or gross negligence.
(g) The board is exempt from the provisions of sections seven
and eleven, article three of this chapter and article three,
chapter five-a of this code:
Provided, That the trustees and
employees of the board are subject to purchasing policies and
procedures which shall be promulgated by the board. The purchasing
policies and procedures may be promulgated as emergency rules
pursuant to section fifteen, article three, chapter twenty-nine-a
of this code.
(h) Any employee of the West Virginia Trust Fund who
previously was an employee of another state agency may return to
the Public Employees Retirement System pursuant to section
eighteen, article ten, chapter five of this code and may elect to
either: (1) Transfer to the Public Employees Retirement System his
or her employee contributions, with accrued interest and, if
vested, his or her employer contributions, with accrued interest
and retain as credited state service all time served as an employee
of the West Virginia Trust Fund; or (2) retain all employee
contributions with accrued interest and, if vested, his or her
employer contributions with interest and forfeit all service credit
for the time served as an employee of the West Virginia Trust Fund.
§12-6-5. Powers of the board.
The board may exercise all powers necessary or appropriate, in accordance with the provisions of the West Virginia Uniform Prudent
Investor Act, codified as article six-c, chapter forty-four of this
code and section eleven of this article, to carry out and
effectuate its corporate purposes, including, but not limited to,
the power to:
(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;
(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,
rules and procedures consistent 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) Upon request of the State Treasurer, transmit funds for
deposit in the State Treasury to meet the daily obligations of
state government;
(21) 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
(22) 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 State Auditor as recordable transactions on the
state's accounting system.
§12-6-9c. Authorization of additional investments.
Notwithstanding the restrictions which may otherwise be
provided by law with respect to the investment of funds, all
administrators, custodians or trustees of pension funds other than
the board, each political subdivision of this state and each county
board of education may 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 nonreal estate equity investments
no more than seventy-five percent of the assets managed by the
board and no more than seventy-five percent of the assets of any
individual participant plan.
(b) In addition to any investments the board may make pursuant
to subsection (h) of this section, the board shall hold in real
estate equity investments no more than twenty-five percent of the
assets managed by the board and no more than twenty-five percent of
the assets of any individual participant plan: Provided, That any
such investment be only made upon the recommendation by a
professional, third-party fiduciary investment adviser registered
with the Securities and Exchange Commission under the Investment
Advisors Act of 1940, as amended, upon the approval of the board or
a committee designated by the board, and upon the execution of the
transaction by a third-party investment manager: Provided, however,
That the board's ownership interest in any fund is less than forty
percent of the fund's assets at the time of purchase: Provided
further, That the combined investment of institutional investors,
other public sector entities and educational institutions and their
endowments and foundations in the fund is in an amount equal to or
greater than fifty percent of the board's total investment in the
fund at the time of acquisition. For the purposes of this
subsection, "fund" means a real estate investment trust traded on
a major exchange of the United States of America, or a partnership,
limited partnership, limited liability company or other entity
holding or investing in related or unrelated real estate
investments, at least three of which are unrelated and the largest
of which is not greater than forty percent of the entity's
holdings, at the time of purchase.
(c) The board shall hold in international securities 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.
(d) The board may not at the time of purchase hold more than
five percent of the assets managed by the board in the nonreal
estate 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 nonreal estate
equity equal to its market weighting.
(e) 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.
(f) Notwithstanding the investment limitations set forth in
this section, it is recognized that the assets managed by the board
or the assets of the 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 participant plans, whichever is applicable, to comply with the limitations set forth in this
section at least once every twelve 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 subsections (b) and (h) of
this section for which compliance with the percentage limitations
shall be measured at such time as the investment is made.
(g) The board, at the annual meeting required 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.
(h) In addition to any and all other investments the board may
make under this article and all investment authority granted to the
board by this article, the board is expressly authorized to invest 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 any other endowment or other fund managed by
the board, as measured at the time of the investment, in any one or
more classes, styles or strategies of alternative investments
suitable and appropriate for investment by the board. A suitable
and appropriate alternative investment is a private equity fund
such as a venture capital, private real estate or buy-out
fund; commodities fund; distressed debt fund; mezzanine debt fund;
hedge fund; put or call on an individual security purchased for the
purpose of hedging an authorized investment position; or fund
consisting of any combination of private equity, distressed or
mezzanine debt, hedge funds, private real estate, commodities and
other types and categories of investment permitted under this
article: Provided, That any such investment be only made upon the
recommendation by a professional, third-party fiduciary investment
adviser registered with the Securities and Exchange Commission
under the Investment Advisors Act of 1940, as amended, upon the
approval of the board or a committee designated by the board and
upon the execution of the transaction by a third-party investment
manager: Provided, however, That if the standard confidentiality
agreements, policies or procedures of any firm, company or
organization through which the board invests in securities
prohibit, restrict or limit the disclosure of information
pertaining to the securities, the information shall be exempt from disclosure, under the provisions of chapter twenty-nine-b of this
code or otherwise, to the extent of the prohibitions, restrictions
or limitations: Provided further, That the board's ownership
interest in any fund is less than forty percent of the fund's
assets at the time of purchase: And provided further, That the
combined investment of institutional investors, other public sector
entities, and educational institutions and their endowments and
foundations in the fund is in an amount equal to or greater than
fifty percent of the board's total investment in the fund at the
time of acquisition. For the purposes of this subsection, "fund"
means a partnership, limited partnership, limited liability company
or other form of entity holding or investing in a collection of
related or unrelated investments, at least three of which are
unrelated and the largest of which is not greater than forty
percent of the fund's composition at the time of purchase. 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 consistent with the laws of the state: And provided
further, That neither the purpose nor the effect of such
transactions may materially increase market risk or market exposure
of the total portfolio of investments as adjusted, from time to
time, by the board. The investments described in this subsection are subject to the requirements, limitations and restrictions set
forth in this subsection 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.
§12-6-14. Reports of board; legislative audits, reviews and
studies.
(a) The board shall prepare annually, or more frequently if
considered necessary by the board, a report of its operations and
the performance of the various funds administered by it. The
report shall include all operational costs, including, but not
limited to, investment advisor fees, transaction costs, custody
fees, and administrative salaries and costs.
(b) A copy shall be furnished to the chief financial officer
of each participant.
(c) Within the first seven calendar days of each calendar
year, the board shall file the annual report with the Joint
Committee on Government and Finance, with copies to the President
of the Senate, Speaker of the House and Legislative Auditor.
(d) Upon request, the report shall be made available to any
legislative committee, any banking institution or state or federal
savings and loan association in this state and any member of the
news media. The report shall be kept available for inspection by
any citizen of this state.
(e) The board shall cooperate with any legislative audits, performance and consultant reviews and studies of the board as may
be directed by the Joint Committee on Government and Finance.
§12-6-18. Liberal construction.
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, at all times in a fashion consistent
with the prudent investor standard as provided by the West Virginia
Uniform Prudent Investor Act, codified as article six-c, chapter
forty-four of this code and section eleven of this article.
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