Legislature(2005 - 2006)BELTZ 211
04/26/2005 03:30 PM STATE AFFAIRS
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* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
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.