Legislature(2005 - 2006)BELTZ 211

04/26/2005 03:30 PM STATE AFFAIRS


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to Call of Chair 8 PM 4/27--
*+ SB 182 STATE VETERANS' CEMETARY & FUND TELECONFERENCED
Moved SB 182 Out of Committee
+ HB 183 CAMPAIGN FINANCE: SHARED EXPENSES/LISTS TELECONFERENCED
Moved SCS CSHB 183(STA) Out of Committee
+ HB 210 BLOODBORNE PATHOGEN TESTING TELECONFERENCED
Moved CSHB 210(JUD) Out of Committee
+ HB 215 PERM FUND CORP. INVESTMENTS/REGULATIONS TELECONFERENCED
Heard & Held
SB 186 EXECUTIVE BRANCH ETHICS
Moved CSSB 186(STA) Out of Committee
SB 187 LEGISLATIVE ETHICS/MEETINGS
Moved CSSB 187(STA) Out of Committee
*+ SB 127 EXEC. BRANCH ETHICS: FINANCIAL INTERESTS TELECONFERENCED
Moved SB 127 Out of Committee
Bills Previously Heard/Scheduled
= HB 127 PFD:PEACE CORPS/OLYMPIAN/SANCTIONS
Moved CSHB 127(FIN) am Out of Committee
     CSHB 215(FIN)-PERM FUND CORP. INVESTMENTS/REGULATIONS                                                                  
                                                                                                                                
VICE-CHAIR THOMAS  WAGONER announced CSHB  215(FIN) to be  up for                                                               
consideration.                                                                                                                  
                                                                                                                                
4:13:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NORMAN  ROKEBERG,   Sponsor,  reported  the  bill                                                               
speaks  to   the  investments  of   the  Alaska   Permanent  Fund                                                               
Corporation that are  guided by a statutory  list, which includes                                                               
restrictions   and   asset   caps   for   particular   investment                                                               
categories.   He  asserted   that   because   of  the   statutory                                                               
restrictions, the  fund may be  taking greater risks  without the                                                               
promise of higher returns.                                                                                                      
                                                                                                                                
Modern  investment theory  focuses  on the  combined  risk of  an                                                               
entire  portfolio  rather  than  the risk  of  each  asset  type.                                                               
Therefore,  he  said, it's  important  to  diversify a  portfolio                                                               
among assets that aren't correlated  in performance. He suggested                                                               
that such diversification is more  likely to result in a positive                                                               
return for the fund while reducing the overall risk.                                                                            
                                                                                                                                
In the past  the legislature has changed the  statutes to address                                                               
circumstances  such as  reaching  investment  caps that  resulted                                                               
from  investment  appreciation.  At  one  point  the  legislature                                                               
introduced a  "basket clause"  to allow  more flexibility  in the                                                               
portfolio,  but it  leaves little  opportunity to  invest in  new                                                               
asset types or for growth in existing assets.                                                                                   
                                                                                                                                
He mentioned a  recent Attorney General opinion  that states that                                                               
the legislature  has the ability  to move the investment  list to                                                               
regulation where the  trustees may make changes in  a more timely                                                               
fashion.                                                                                                                        
                                                                                                                                
HB 215 makes  that change and gives the  trustees the flexibility                                                               
and freedom to  establish and administer a  legal investment list                                                               
in regulation while  conforming to the Prudent  Investor Rule. He                                                               
noted that the fund is  exempt from the Administrative Procedures                                                               
Act.                                                                                                                            
                                                                                                                                
4:16:59 PM                                                                                                                    
                                                                                                                                
SENATOR KIM ELTON asked for a  response to the criticism that the                                                               
legislature is abdicating  its role by turning over  its power to                                                               
a  board  of  trustees  that   works  in  the  executive  branch.                                                               
Furthermore, its members  may or may not have  any more expertise                                                               
than some legislators.                                                                                                          
                                                                                                                                
REPRESENTATIVE  ROKEBERG responded  he  didn't  believe that  the                                                               
combined  wisdom of  60  minds  is in  any  way  superior to  the                                                               
professional  advice   and  management  of  the   Permanent  Fund                                                               
Corporation.  Referencing  his  own  broad  knowledge  of  fiscal                                                               
management, he said he wouldn't  want the responsibility. It's in                                                               
the  best interest  of the  state  to allow  the corporation  the                                                               
proposed flexibility, he declared.                                                                                              
                                                                                                                                
4:21:45 PM                                                                                                                    
                                                                                                                                
MIKE BURNS, Chief Executive  Officer, Permanent Fund Corporation,                                                               
introduced  himself and  Laura Ashe,  Director of  Communications                                                               
and Research.                                                                                                                   
                                                                                                                                
He reminded members that four  key elements would remain with the                                                               
proposed change:                                                                                                                
   · Investments would always be made under the Prudent Investor                                                                
     Rule.                                                                                                                      
   · The board may leverage assets only if there is no recourse                                                                 
     to the fund.                                                                                                               
   · The board must maintain a diverse mix of assets                                                                            
   · In-state investments must have a risk and return comparable                                                                
     to other investment alternatives.                                                                                          
                                                                                                                                
To illustrate  new ideas in  the investment arena he  pointed out                                                               
that the  corporation recently let  one Small CAP manager  go and                                                               
hired nine at $60 million  apiece. Experience has shown that more                                                               
managers in  that particular  area result in  a better  chance of                                                               
success. That's not necessarily the  case in other asset classes,                                                               
however.                                                                                                                        
                                                                                                                                
It's important to  note that the corporation  wouldn't have hired                                                               
half of those managers  on their own, but the fit  was right as a                                                               
team approach  and the  asset class  is covered  more completely.                                                               
Stability  is   achieved  when   one  manager's   returns  aren't                                                               
correlated with another manager's returns.                                                                                      
                                                                                                                                
He   offered  two   perspectives  to   the  question   about  the                                                               
independence  of the  trustees. The  first draws  on his  20-year                                                               
banking experience in dealing with the  fund. In that time he has                                                               
always  been impressed  with the  commitment and  independence of                                                               
the  trustees. Second,  the legislation  that was  passed in  the                                                               
last session  further insulated the  trustees from  the political                                                               
process in that trustees can only be removed for cause.                                                                         
                                                                                                                                
MR. BURNS highlighted two points for the record:                                                                                
                                                                                                                                
   · Forty-four of the fifty states manage their pension funds                                                                  
     and endowments according to the Prudent Investor Rule.                                                                     
   · Use of a statutory investment list is waning across the                                                                    
     country and it's time for Alaska to move in that direction.                                                                
                                                                                                                                
4:26:21 PM                                                                                                                    
                                                                                                                                
VICE-CHAIR  WAGONER asked  how  many states  that  are using  the                                                               
Prudent  Investor  Rule have  a  fund  that's equivalent  to  $30                                                               
billion.                                                                                                                        
                                                                                                                                
MR. BURNS responded there are  few endowment funds similar to the                                                               
Alaska Permanent Fund, but more  typically they're managing state                                                               
pension  funds.  Some of  those  are  much  larger and  some  are                                                               
smaller. For  example, the  California Public  Retirement Pension                                                               
Fund  is about  $230 billion  and  Wyoming has  a permanent  fund                                                               
that's considerably smaller than Alaska's.                                                                                      
                                                                                                                                
There were no further questions or testimony.                                                                                   
                                                                                                                                
VICE-CHAIR WAGONER set CSHB 215(FIN) aside.                                                                                     

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