Legislature(2021 - 2022)GRUENBERG 120
03/22/2022 03:00 PM House STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB401 | |
| HB396 | |
| SB95 | |
| HB309 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 401 | TELECONFERENCED | |
| += | HB 396 | TELECONFERENCED | |
| += | HB 142 | TELECONFERENCED | |
| + | SB 95 | TELECONFERENCED | |
| += | HB 309 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB 401-NO STATE INVESTMENT IN RUSSIAN FEDERATION
3:08:40 PM
CHAIR KREISS-TOMKINS announced that the first order of business
would be HOUSE BILL NO. 401, "An Act relating to certain
investments of state funds in the Russian Federation and
financial institutions profiteering from the Russian
Federation's invasion of Ukraine; providing indemnity and
immunity for certain investment actions taken in compliance with
law; and providing for an effective date."
3:09:24 PM
LUCINDA MAHONEY, Commissioner, Department of Revenue (DOR),
introduced HB 401, on behalf of the House Rules Standing
Committee, sponsor by request of the governor. She provided a
PowerPoint presentation, titled "HB 401 - Divestment regarding
Russian Entities." She began on slide 3, which read as follows
[original punctuation provided]:
HB 401 Bill Summary
Prohibits investment in and requires divestment of
Russian assets in funds subject to AS 37.10.
Assets include all sovereign debt of the Russian
Federation and publicly traded securities of a company
identified by the United States Department of
Treasury, Office of Foreign Assets (OFAC).
Provides for a 180-day exit from the assets once
identified.
Divestment is not required for comingled funds, but
the fiduciary is required to request that fund
managers consider divestment annually on January 31.
Precludes the Commissioner of Revenue or other
fiduciary from conducting business with banks who are
"profiteering" from the Russian invasion of Ukraine.
COMMISSIONER MAHONEY provided an explanation of the Office of
Foreign Assets (OFAC), U.S. Department of Treasury. She said
OFAC was tasked with identifying Russian institutions close to
President Vladimir Putin that were likely involved in funding
the invasion of Ukraine. She reported that 13 Russian entities
were identified and consequently included in the U.S. sanctions.
She said the goal of the sanctions was to cripple the core
infrastructure of the Russian financial system such that it
would diminish funding for the war.
3:16:58 PM
COMMISSIONER MAHONEY continued to slide 4, which read as follows
[original punctuation provided]:
HB 401 Bill Summary (continued)
May allow investments if not doing so would be
inconsistent with applicable fiduciary
responsibilities but requires at least three
alternative investment opportunities to be considered.
Excludes Alaska Permanent Fund Corporation (APFC) and
the Alaska Retirement Management Board (ARMB),
allowing divestment decisions by these entities'
boards.
Exempts those taking divestment actions or inactions,
in good faith, from liability for doing so.
Provides reporting mechanisms to the Legislature as
to the divestment activity undertaken.
Expires on July 1, 2023.
3:19:58 PM
COMMISSIONER MAHONEY turned to slide 8, which read as follows
[original punctuation provided]:
Treasury Russian Equity Investments 1/31/22
Treasury Russian equity investments 0.23% of $50.6
billion in assets:
State Investments 0.10% of $7.7 billion in assets
0.10% of state assetshad Russian equity exposure on
1/31/22 ($7.4 million).
1 passive/index investment manager.
Defined Benefit Retirement Systems 0.28% of $33.9
billion in assets
0.28% of the retirement funds had Russian equity
exposure on 1/31/22 ($93.5 million).
7 investment managers 4 active, 3 passive/index.
Participant Directed 0.15% of $9.0 billion in assets
0.15% of participant directed assetshad Russian
equity exposure on 1/31/22 ($13.4 million).
4 investment managers 2 managers active, 2
passive/index funds.
All ofthe Russian exposure is through commingled
funds where the ARMB is not the direct fiduciary for
the funds.
Treasury has directed a halt to the purchase of
Russian securities at this time due to illiquidity and
risk uncertainty.
3:21:07 PM
COMMISSIONER MAHONEY concluded on slide 9, which read as follows
[original punctuation provided]:
What are others doing?
States
Research and surveys administered by The Pennsylvania
Treasurershow that as of 3/12/22, there were a total
of 37 states currently looking into or currently
freezing state money or pension funds going to Russian
companies, investments or oligarchs.
Other actions taken by other states include the
following:
Looking into or currently banning state agencies from
doing business with Russian state-owned firms and
subcontractors.
Blocking Russian businesses and nonprofits from
acquiring property in their state for 1 year.
Looking into or ending sister state relationship with
Russia.
Officially condemned Russia's invasion.
Welcoming refugees.
Calling on businesses to ban Russian made goods.
Norway Sovereign Wealth Funds
Norway announced that they are divesting from Russia.
Russian assets at the end of 2021 made up 0.2% of
Norway fund ($3 billion in total).
Recognize that divestment takes time because they
want to ensure sales are not made to sanctioned
individuals/entities.
3:22:15 PM
REPRESENTATIVE EASTMAN asked how profiteering would be defined.
COMMISSIONER MAHONEY shared her understanding that profiteering
would be defined "based on the day that we would be evaluating
this." She expected that the circumstances, evaluations, and
volatility would change constantly. She provided an example.
REPRESENTATIVE EASTMAN asked whether the [Alaska Permanent Fund
Corporation (APFC)] board had a policy against unfair or
excessive profits.
COMMISSIONER MAHONEY answered no.
3:24:38 PM
REPRESENTATIVE STORY inquired about the differences between HB
401 and HB 396.
COMMISSIONER MAHONEY explained that HB 401 excluded APFC and the
Alaska Retirement Management Board (ARMB) and included
provisions for profiteering; additionally, the repeal dates were
different, as well as the divestment timelines. Furthermore, HB
401 would create a new statute, which would need to be repealed
when the issue was resolved, whereas HB 396 was identified as
"uncodified statute in law."
3:27:03 PM
REPRESENTATIVE VANCE asked why the legislation was needed if the
state followed the prudent investor rule and it would be
imprudent to invest in Russian assets for the foreseeable
future.
COMMISSIONER MAHONEY acknowledged that external managers had
been directed not to purchase any new Russian investments;
however, HB 401 pertained to the management of existing
investments. She pointed out that trustees from APFC and ARMB
could have different ideas on what constituted a prudent
investment strategy.
REPRESENTATIVE VANCE sought to confirm that HB 401 was
essentially asking the legislature to decide what was socially
acceptable for state funds.
COMMISSIONER MAHONEY clarified that HB 401 would enable the
Treasury Division, DOR, to make a divestment decision and take
the potentially social component off the table.
REPRESENTATIVE VANCE asked how much the state could stand to
lose by divesting.
COMMISSIONER MAHONEY said there was always the potential that
nothing would be recovered, and the state would lose all of it,
which would be the worst-case scenario. She highlighted the
enormous amount of uncertainty in the current environment.
3:31:15 PM
REPRESENTATIVE TARR asked whether divestment actions were
trending in other states.
COMMISSIONER MAHONEY suspected that the answer was yes, as
Americans tended to be very supportive of Ukraine.
3:33:15 PM
HAIR KREISS-TOMKINS announced that HB 401 was held over.