00 HOUSE BILL NO. 156 01 "An Act relating to investments by the Alaska Permanent Fund Corporation; and 02 providing for an effective date." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 37.13.120(e) is amended to read: 05 (e) The corporation may not borrow money or guarantee from principal of the 06 fund the obligations of others except as provided in this subsection. With respect 07 to real property investments of the fund, the corporation may, either directly or 08 through an entity in which the investment is made, borrow money if the 09 borrowing is without recourse to the corporation and the fund . 10 * Sec. 2. AS 37.13.120(g) is amended to read: 11 (g) Subject to the limitations contained in this section, the board may invest 12 fund assets at the competitive national market rates or prices that are applicable to each 13 investment only in 14 (1) obligations of, or obligations insured by or guaranteed by, the 01 United States or agencies or instrumentalities of the United States; 02 (2) obligations secured by reserves paid in by the United States or 03 agencies or instrumentalities of the United States or obligations of corporations in 04 which the United States is a shareholder or member; 05 (3) certificates of deposit and term deposits of United States domestic 06 banks that are members of the Federal Deposit Insurance Corporation and that may be 07 readily sold in a secondary market at prices reflecting fair value or that are fully 08 secured at all times as to payment of principal and interest as described in (m) of this 09 section; 10 (4) certificates of deposit and term deposits of federally chartered 11 savings and loan associations in Alaska that are fully secured at all times as to 12 payments of principal and interest as described in (m) of this section; 13 (5) certificates of deposit and term deposits of mutual savings banks 14 in Alaska that are fully secured at all times as to payments of principal and interest as 15 described in (m) of this section; 16 (6) fixed-term certificates of indebtedness of federally insured credit 17 unions in Alaska that are fully secured at all times as to payments of principal and 18 interest as described in (m) of this section; 19 (7) [DOMESTIC CORPORATE] debt instruments that have been 20 issued by domestic entities and [SECURITIES] that are rated investment grade [BY 21 A NATIONALLY RECOGNIZED RATING SERVICE], or [NONDOMESTIC 22 CORPORATE] debt instruments [SECURITIES] of comparable quality issued by 23 nondomestic entities ; 24 (8) short-term 25 (A) [DOMESTIC CORPORATE] promissory notes that have 26 been issued by domestic entities and that are rated investment grade [OF 27 THE HIGHEST RATINGS ASSIGNED BY A NATIONALLY RECOGNIZED 28 RATING SERVICE]; or 29 (B) [NONDOMESTIC CORPORATE] promissory notes of 30 comparable quality issued by nondomestic entities , the interest on which may 31 be payable in either United States dollars or nondomestic currencies; 01 (9) bankers' acceptances drawn on and accepted by United States banks 02 each of which has a combined capital and surplus aggregating at least $200,000,000; 03 (10) repurchase agreements, the securities underlying the agreements 04 being any of the items in (1) - (6) of this subsection; 05 (11) the portions of business and industrial loans made under the Rural 06 Development Act of 1972 that are guaranteed by the Farmers Home Administration; 07 (12) the guaranteed portion of Farmers Home Administration loans; 08 (13) notes secured by mortgages granting a first lien on residential real 09 estate improved by completed buildings if the mortgages are insured by a private 10 mortgage insurance corporation that is authorized to do business in this state and has 11 combined capital and surplus aggregating at least $20,000,000 [,] and if loan-to-value 12 ratios do not exceed 90 percent; however, mortgage insurance is not necessary for 13 residential loans having a loan-to-value ratio of less than 70 percent and the minimum 14 coverage of other residential loans shall be 10 percent for those having a loan-to-value 15 ratio greater than 70 percent but less than 90 percent and 20 percent for those having 16 a loan-to-value ratio of 90 percent; 17 (14) preferred and common stock and other equity interests in 18 entities organized [OF CORPORATIONS INCORPORATED] in the United States; 19 (15) certificates of deposit, term deposits, or bankers' acceptances, that 20 are issued by a United States or nondomestic bank or trust company located outside 21 of the United States and are denominated in United States or nondomestic currency [,] 22 if either (A) they may be readily sold in a secondary market at prices reflecting fair 23 value, or (B) the issuing bank or trust company has capital, surplus, and retained 24 earnings at the date of issue equaling at least $500,000,000; investments made under 25 this paragraph are not subject to the collateral requirements for domestic certificates 26 under (m) of this section; 27 (16) equity interests in, and debt obligations secured by mortgages 28 granting a first lien on, real estate if the real estate is located in the United States 29 and is 30 (A) improved by completed and substantially rented buildings ; 31 or 01 (B) located within the market area of real property in which 02 the fund holds an existing interest and is acquired 03 (i) for the purpose of creating or adding to a 04 portfolio of similar properties; or 05 (ii) to retain or service the needs of existing tenants 06 [AND LOCATED IN THE UNITED STATES IF THE TOTAL 07 VALUE HELD BY THE FUND IN EACH INVESTMENT DOES NOT 08 EXCEED $150,000,000, AND, IF THE TOTAL VALUE HELD BY 09 THE FUND IN EACH INVESTMENT EXCEEDS $150,000,000, 10 THESE INVESTMENTS ARE MADE 11 (A) IN A CORPORATION, PARTNERSHIP, TRUST, OR 12 OTHER ENTITY IN WHICH, AT THE CONCLUSION OF EACH 13 INVESTMENT TRANSACTION, AT LEAST 33 PERCENT OF THE 14 BENEFICIAL OWNERSHIP INTERESTS ARE HELD BY OTHER 15 INSTITUTIONAL INVESTORS, AND WHICH IS ORGANIZED AND 16 OPERATED FOR THE PURPOSE OF MAKING REAL ESTATE 17 INVESTMENTS BY A BANK, INSURANCE COMPANY, OR OTHER 18 MANAGER OF INSTITUTIONAL FUNDS THAT HAS HAD AT LEAST 19 FIVE YEARS OF EXPERIENCE IN THE MANAGEMENT OF REAL 20 ESTATE INVESTMENTS OF INSTITUTIONAL INVESTORS; OR 21 (B) WITH CORPORATIONS, PARTNERSHIPS, TRUSTS, OR 22 ENTITIES IN WHICH, AT THE CONCLUSION OF EACH INVESTMENT 23 TRANSACTION, AT LEAST 33 PERCENT OF THE BENEFICIAL 24 OWNERSHIP INTERESTS IN THE CO-INVESTING ENTITY OR ENTITIES 25 AS A WHOLE ARE HELD BY INSTITUTIONAL INVESTORS, AND IF 26 (i) AT THE TIME OF INVESTMENT THE FUND 27 HAS NO MORE THAN A 67 PERCENT BENEFICIAL OWNERSHIP 28 INTEREST IN THE REAL ESTATE INVESTED IN AS A WHOLE; 29 (ii) THE RIGHTS AND OBLIGATIONS OF THE 30 FUND ARE SUBSTANTIALLY SIMILAR TO THOSE OF THE 31 OTHER INSTITUTIONAL INVESTORS, EXCEPT FOR THE 01 PERCENTAGE INTEREST IN THE PROPERTY; AND 02 (iii) THE PROPERTY IS MANAGED AND 03 OPERATED BY AN ENTITY THAT HAS HAD AT LEAST FIVE 04 YEARS OF EXPERIENCE IN THE MANAGEMENT OF REAL 05 ESTATE INVESTMENTS OF INSTITUTIONAL INVESTORS]; 06 (17) securities of nondomestic governments and nondomestic 07 government agencies, the principal of, or interest on, which is payable in either United 08 States dollars or nondomestic currencies; 09 (18) securities of other nondomestic entities [CORPORATIONS, 10 INCLUDING COMMON AND PREFERRED STOCK,] whose dividends, if any, may 11 be payable in either United States dollars or nondomestic currencies; 12 (19) taxable municipal or state debt instruments [SECURITIES] that 13 are rated investment grade [BY A NATIONALLY RECOGNIZED RATING 14 SERVICE]; 15 (20) shares in a money market or short-term investment fund that has 16 either collateral securities of a type authorized elsewhere in this section as acceptable 17 collateral or securities of similar quality to those authorized elsewhere in this section 18 as acceptable collateral ; 19 (21) interests in a titleholding entity, real estate investment trust, 20 real estate operating company, or other entity whose assets consist predominantly 21 of 22 (A) equity interests in real property or debt obligations 23 secured by mortgages granting a lien on real property, so long as the 24 property is of a type in which the corporation is otherwise permitted to 25 invest fund assets under this subsection; or 26 (B) interests in other entities in which the corporation is 27 permitted to invest fund assets under this paragraph . 28 * Sec. 3. AS 37.13.120(h) is amended to read: 29 (h) The board may enter into future contracts for the sale of investments 30 purchased under (g) of this section, or for the sale of nondomestic currencies, only for 31 the purpose of hedging an existing equivalent ownership position in these investments 01 or as a means of implementing asset allocation strategies . 02 * Sec. 4. AS 37.13.120(i) is amended to read: 03 (i) The fund may at no time acquire [OWN] more than five percent of the 04 voting stock of a corporation unless the issuing corporation is an entity in which the 05 Alaska Permanent Fund Corporation is permitted to invest fund assets under 06 (g)(21) of this section . Domestic stocks, except for bank and insurance company 07 stocks and stocks of corporations in which the Alaska Permanent Fund 08 Corporation is permitted to invest fund assets under (g)(21) of this section , must 09 be listed at the date of purchase on an exchange registered with the Securities and 10 Exchange Commission. Except as otherwise permitted under (k) of this section, 11 at [AT] the time of each investment, the aggregate investment of the fund in each 12 stated category of investment may not exceed the following stated percentage of the 13 total investments of the fund: 14 (1) mortgages under (g)(13) of this section--15 percent; 15 (2) real estate investments under (g)(16) and 21 of this section--15 16 percent; 17 (3) certificates of deposit, term deposit, or bankers' acceptances under 18 (g)(15) of this section--20 percent; 19 (4) interests in domestic and nondomestic entities [CORPORATE 20 STOCKS] under (g)(14) and (18) of this section--50 percent [. 21 (5) REPEALED]. 22 * Sec. 5. AS 37.13.120(j) is amended to read: 23 (j) The assets of the fund may not be used for the purchase of debt 24 instruments [BONDS] of a corporation or other entity [,] upon which any regular 25 interest payment has been defaulted within five years before purchase, except debt 26 instruments [BONDS] never in default but which have been outstanding for less than 27 five years. 28 * Sec. 6. AS 37.13.120(k) is amended to read: 29 (k) The board shall establish and from time to time as necessary modify 30 guidelines for the investment of the assets of the fund. Before adoption of any 31 guidelines , the guidelines shall be reported to the Legislative Budget and Audit 01 Committee for review and comment. Notwithstanding (g) of this section or the 02 percentage investment limitations under (i) of this section and so long as doing so 03 satisfies the prudent-investor rule under (a) of this section, the board may invest 04 up to five percent of the total assets of the fund in either or a combination of the 05 following: 06 (A) other types of investments not specifically listed in (g) 07 of this section; 08 (B) categories of investment subject to the percentage 09 investment limitations established in (i) of this section, even though 10 investing additional assets in a category will cause the aggregate 11 investment in the category to exceed the applicable percentage limitation. 12 * Sec. 7. AS 37.13.120 is amended by adding a new subsection to read: 13 (p) For purposes of applying the percentage investment limitations established 14 in (i) of this section, if the board determines that a particular form of investment 15 authorized under (g) of this section may appropriately be classified in more than one 16 category of investment, it may elect the category to which that form of investment is 17 assigned. 18 * Sec. 8. This Act takes effect immediately under AS 01.10.070(c).