Legislature(1993 - 1994)
03/08/1994 01:40 PM Senate L&C
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SENATE LABOR AND COMMERCE COMMITTEE
March 8, 1994
1:40 P.M.
MEMBERS PRESENT
Senator Steve Rieger, Vice Chairman
Senator Bert Sharp
MEMBERS ABSENT
Senator Tim Kelly
Senator Georgianna Lincoln
Senator Judith Salo
COMMITTEE CALENDAR
HOUSE BILL NO. 327
"An Act extending the termination date of the Board of Veterinary
Examiners; and providing for an effective date."
CS FOR SENATE BILL NO. 245(STA)
"An Act relating to investments of the permanent fund involving
equity interests in and debt obligations secured by mortgages on
real estate; and providing for an effective date."
SB 213 (APUC EXTENSION AND REGULATORY COST CHARGE) WAS SCHEDULED,
BUT NOT HEARD THIS DATE.
PREVIOUS ACTION
HB 327 - No previous action to record.
SB 245 - See State Affairs minutes dated 1/28/94 and 2/4/94.
SB 213 - See Labor & Commerce minutes dated 9/28/93, 2/8/94,
and 2/24/94.
WITNESS REGISTER
Benjamin Brown, Legislative Aide
c/o Representative Cynthia Toohey
State Capitol
Juneau, Ak. 99801-1182
POSITION STATEMENT: Commented on HB 327.
Jim Kelly, Research Liaison Officer
Permanent Fund Corporation
P.O. Box 25500
Juneau, Ak. 99802
POSITION STATEMENT: Supported SB 245.
Llewellyn Lutchansky, Assistant Real Estate Investment Officer
Permanent Fund Corporation
P.O. Box 25500
Juneau, Ak. 99802
POSITION STATEMENT: Supported SB 245.
ACTION NARRATIVE
TAPE 94-14, SIDE A
Number 001
VICE CHAIRMAN RIEGER called the Senate Labor and Commerce meeting
to order at 1:40 p.m. and announced HB 327 (EXTEND BOARD OF
VETERINARY EXAMINERS) to be up for consideration.
BENJAMIN BROWN, Legislative Aide for Senator Toohey, sponsor, said
it extends the sunset date of the state's Board of Veterinary
Examiners which has been in existence continuously since 1963. If
this bill doesn't pass, it will cease to exist at the end of the
current fiscal year.
SENATOR RIEGER thanked him for his testimony and said they would
move the bill out today if they had a quorum.
SENATOR RIEGER announced SB 245 (PERMANENT FUND INVESTMENTS IN REAL AL
ESTATE) to be up for consideration.
JIM KELLY, Research Liaison Officer, Permanent Fund Corporation,
introduced Llewellyn Lutchansky, Assistant Real Estate Investment
Officer, who testified with him.
MR. KELLY explained that they have run into the situation with
their real estate portfolio where they have more risk than they
need and certainly more risk than they want.
He explained that SB 245 removes a restriction on how much of a
particular investment the Permanent Fund Corporation can buy. They
would like it possible to buy 100% of an investment instead of the
40% they are held to now. They need more control over the
disposition of the properties and in order to be able to operate in
the future, they need to be in the position where they are not
always in the minority interest.
MR. KELLY explained they are losing many opportunities that would
give them a good rate of return with relatively low levels of risk.
They are not available to them, because other investors comes are
able to buy them at 100% - and they do.
He said the legislature set a limit of 15% of the portfolio to be
invested in real estate and they haven't even come close to that,
yet. They are at about 7%. For them to reach the target the Board
has set which is 10% they would need the flexibility to own more
than 40% of properties.
Number 108
LLEWELLYN LUTCHANSKY explained when laws were first passed
governing the Permanent Fund, it was new, the managers were
inexperienced, and they didn't have much money to invest in real
estate which is why the 40% rule was put into law. Now they have
over $1 billion in real estate, about 6% of the fund.
Last year they spent $145 million on 8 new deals, Ms. Lutchansky
said. That's about $18 million per deal. At this rate it would
take 31 more deals this year to reach their asset allocation of
10%.
SENATOR SHARP asked on page 1, section 1 if up to $50 million they
can own 100% and over $50 million they can own up to 60%. MR.
KELLY said that was the CS from the Labor and Commerce Committee
and they would rather go with the original bill which would allow
100% with no cap.
MS. LUTCHANSKY said she has asked some of the fund managers who are
partners with the Permanent Fund Corporation if they have
coinvestment limitations and no one else has.
SENATOR SHARP asked if they had experienced difficulty in getting
out of deals because they were a minority partner. MS. LUTCHANSKY
said they have definitely had real problems with that.
SENATOR RIEGER said he was in favor of loosening the real estate
investment restrictions. He also thought they should change the
percentage of portfolio restriction over all.
MR. KELLY said the Fund will never reach their limit no matter what
it is if they have the 40% coinvestment restriction.
MS. LUTCHANSKY said they do not intend to stop coinvesting,
especially on large deals, but they would like to be a majority
holder and would like the flexibility to purchase more of the asset
later if they need to.
Number 274
SENATOR RIEGER said he was in favor of loosening some of the
investment restrictions if it's accompanied by a really strong
fiduciary duty by the trustees, which he was sure they practiced,
but weren't mandated statutorily.
MS. LUTCHANSKY said she knew the statute included a lot of
discussion about prudent and intelligent investments.
SENATOR RIEGER said he would also like to delete the restriction on
investing in the U.S. only.
MR. KELLY noted that the 40% provision was the most important to be
removed.
SENATOR RIEGER thanked everyone for their participation and said
they would hold the bill for a future meeting. He adjourned the
meeting at 2:03 p.m.
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