Legislature(2005 - 2006)BELTZ 211
05/03/2005 03:30 PM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB215 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 189 | TELECONFERENCED | |
| = | HB 215 | ||
ALASKA STATE LEGISLATURE
SENATE STATE AFFAIRS STANDING COMMITTEE
May 3, 2005
3:44 p.m.
MEMBERS PRESENT
Senator Gene Therriault, Chair
Senator Thomas Wagoner, Vice Chair
Senator Charlie Huggins
Senator Kim Elton
MEMBERS ABSENT
Senator Bettye Davis
COMMITTEE CALENDAR
CS FOR HOUSE BILL NO. 215(FIN)
"An Act relating to the investment responsibilities of the
Alaska Permanent Fund Corporation; relating to regulations
proposed and adopted by the Board of Trustees of the Alaska
Permanent Fund Corporation and providing procedures for the
adoption of regulations by the board; and providing for an
effective date."
MOVED CSHB 215(FIN) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 215
SHORT TITLE: PERM FUND CORP. INVESTMENTS/REGULATIONS
SPONSOR(s): REPRESENTATIVE(s) ROKEBERG BY REQUEST
03/09/05 (H) READ THE FIRST TIME - REFERRALS
03/09/05 (H) STA, FIN
04/12/05 (H) STA AT 8:00 AM CAPITOL 106
04/12/05 (H) Moved Out of Committee
04/12/05 (H) MINUTE(STA)
04/13/05 (H) STA RPT 5DP 1NR
04/13/05 (H) DP: GARDNER, LYNN, ELKINS, RAMRAS,
SEATON;
04/13/05 (H) NR: GATTO
04/14/05 (H) FIN AT 1:30 PM HOUSE FINANCE 519
04/14/05 (H) Moved CSHB 215(FIN) Out of Committee
04/14/05 (H) MINUTE(FIN)
04/15/05 (H) FIN RPT CS(FIN) 4DP 5NR
04/15/05 (H) DP: HAWKER, FOSTER, MEYER, CHENAULT;
04/15/05 (H) NR: CROFT, MOSES, HOLM, STOLTZE, KELLY
04/19/05 (H) BEFORE THE HOUSE
04/19/05 (H) WEYHRAUCH NOTICE OF RECONSIDERATION
WITHDRAWN
04/20/05 (H) TRANSMITTED TO (S)
04/20/05 (H) VERSION: CSHB 215(FIN)
04/21/05 (S) READ THE FIRST TIME - REFERRALS
04/21/05 (S) STA, FIN
04/26/05 (S) STA AT 3:30 PM BELTZ 211
04/26/05 (S) Heard & Held
04/26/05 (S) MINUTE(STA)
WITNESS REGISTER
Jim Baldwin
Department of Law
PO Box 110300
Juneau, AK 99811-0300
POSITION STATEMENT: Answered questions on HB 215
Mike Burns, CEO
Alaska Permanent Fund Corporation
Department of Revenue
PO Box 110400
Juneau, AK 99811-0400
POSITION STATEMENT: Answered questions related to the HB 215
ACTION NARRATIVE
CHAIR GENE THERRIAULT called the Senate State Affairs Standing
Committee meeting to order at 3:44:52 PM. Present were Senators
Elton, Wagoner, Huggins and Chair Therriault.
CSHB(FIN) 215-PERM FUND CORP. INVESTMENTS/REGULATIONS
CHAIR GENE THERRIAULT announced HB 215 to be up for
consideration. He asked for an explanation of the regulatory
process that would be used in setting up this new system.
JIM BALDWIN, Department of Law, explained that the new
abbreviated regulatory process is very similar to the process
used in the Alaska Industrial Development and Export Authority
(AIDEA) and the Alaska Housing Finance Corporation (AHFC). Those
processes were enacted in law when the corporations argued that
they needed to be more nimble than the regular line agency to
have the ability to adapt to market conditions. AIEDA needed an
abbreviated adoption process since it was in the housing and
secondary mortgage market.
He noted the comparison between the AS 44.62 regulation adoption
process and the proposed process in CSHB 215(FIN). The basic
differences are in the amounts of time for public notice and the
amount of time it takes a regulation to become effective once
it's filed. Another significant difference is that there is no
Department of Law review and approval by the regulations
attorney. They are effective upon filing with the Lieutenant
Governor's Office.
DOL is closely involved with the Permanent Fund Corporation and
he suggested DOL would be involved in drafting the regulation so
the Permanent Fund Corporation would not escape DOL review or
involvement.
3:48:01 PM
CHAIR THERRIAULT asked Mr. Burns to explain the types of
additional investment opportunities and to review the handout
titled "Alaska Permanent Fund Corporation Reducing Risk,
Increasing Return."
MICHAEL BURNS, CEO, Alaska Permanent Fund Corporation, directed
members to the graph on page 4 labeled "Efficient Frontier." The
horizontal line indicates risk according to annualized standard
deviation, and the vertical line indicates annualized return.
The chart shows potential risk and return for various
portfolios under the Fund's current investment
restrictions (blue line), and under the Prudent
Investor Rule alone (red line).
The chart demonstrates that under the Prudent Investor
Rule, the Fund could potentially earn the same return
as the current portfolio (March 2004 target) with more
than 3 percent less risk (Expected Return = 8.83). Or,
for the same risk the Fund could earn almost 1 percent
more return (Standard Deviation = 10.29).
3:50:39 PM
As previously mentioned, all but six states have adopted the
Prudent Investor Rule rather than maintaining statutory
investment lists.
CHAIR THERRIAULT asked how availing yourself of riskier
investment options, would lower the risk.
MR. BURNS initiated the explanation by saying that the
corporation just released one small cap manager and hired nine
small cap managers. Small cap investment is capacity
constrained. The investment firms tend to be small and although
they may do a good job of managing $300 million, the staff and
systems are probably insufficient to manage $500 million. In
addition, the math shows that in the small cap area of
investment management, it's better to have more managers to come
up with more ideas. Of course, that's not the case in all asset
classes.
Accordingly, the corporation released the one small cap manager
that was paid $550 million per annum and hired nine managers at
just over $60 million apiece. Interestingly, of those nine
managers, between one third and one half wouldn't have been
hired on their own. Together the corporation liked the way they
fit into the breadth approach of the small cap market place.
He went on to explain that the investment key is to try to get
investments that don't correlate. The effort is to achieve
balance and have assets moving in different directions because
higher risk investments that are uncorrelated can give a
portfolio that is less risky. Finally, he made the point that
portfolios today are managed as portfolios and not as an asset
class or an individual ownership.
CHAIR THERRIAULT summarized it's the blend of risks.
MR. BURNS said yes.
SENATOR CHARLIE HUGGINS asked if hedging is employed as an
investment strategy.
MR. BURNS replied an absolute return strategy might be used to
lock in a percentage and those are basically hedged assets. He
suggested the types of assets wouldn't be dramatically
different; there would be combinations of long and short
strategies of hedged positions.
3:55:09 PM
SENATOR HUGGINS asked if hedging would be a greater part of the
strategy than it is currently.
MR. BURNS said it would depend on how the market reacts to the
different conditions. What's most important about the statutory
list is its lack of responsiveness to changing market
conditions.
3:56:01 PM
SENATOR HUGGINS asked if the Prudent Investor Rule requires more
or less financial agility.
MR. BURNS replied the corporation uses the term "prudent
investor" because it's widely known and is the standard that's
used across the country. He read page 1, lines 11 through page
2, line 1 and pointed out it refers to an institutional investor
rather than a prudent investor.
3:57:32 PM
SENATOR KIM ELTON questioned whether the prudent investor rule
works differently for real estate investments than for equity
investments.
MR. BURNS replied the equity investment process is different
than the real estate investment process, which tends to be more
yield-driven.
SENATOR ELTON asked if the provisions in HB 215 would apply
equally to the real estate investment portfolio and to the
equities portfolio.
MR. BURNS said yes.
CHAIR THERRIAULT noted the bill had a zero fiscal note. He asked
Mr. Burns to be aware that some Senate members have questions on
the bill and they would look to Senator Stedman and Senator
Seekins for a final opinion before it moves to the floor.
4:01:26 PM
SENATOR WAGONER motioned to report CSHB 215(FIN) and attached
fiscal notes from committee with individual recommendations.
There being no objection, it was so ordered.
There being no further business to come before the committee,
Chair Therriault adjourned the meeting at 4:01:43 PM.
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