HB 6-STATE FUND FIDUC DUTY:SOCIAL/POL INTEREST  1:03:48 PM VICE CHAIR KOPP announced that the first order of business would be HOUSE BILL NO. 6, "An Act restricting fiduciary actions by a fiduciary of a state fund, the Alaska Retirement Management Board, and the Alaska Permanent Fund Corporation Board that have the purpose of furthering social, political, or ideological interests." 1:04:04 PM REPRESENTATIVE KEVIN MCCABE, Alaska State Legislature, as prime sponsor, presented HB 6. He read from the following prepared remarks [original punctuation provided]: Again, thank you for hearing HB6. This bill keeps our Alaska Permanent Fund and State Retirement Fund doing what they're built formaking money for Alaskans, not bowing to trendy mandates from across the pond or anywhere else. Here's why we need it." 1. Pecuniary Duty Is Our North Star o The Permanent Fund and State Retirement Fund have one job: grow the pot to fund state government and the PFD$1,702 per Alaskan last year. That's real money for real needsroads, schools, heat. HB6 locks fiduciaries into pecuniary interestmaxing returns, no detours. Chairman, this is about keeping our funds' eyes on the prize, not chasing feel-good fluff like Europe's forcing on their companies. 2. Fossil Fuels PayAnd They're a Lifeline o "Take Alex Epstein's Moral Case for Fossil Fuels he nails it: coal, oil, gas keep Alaska and the world running. Our funds' roots are oil royalties, and coal's still raking it in8.7 billion tons globally in 2023. HB6 says we don't dump winners, even if they don't fit the latest social or environmental justice fad, just for Net Zero hype. It's not just profitit's what powers our homes and jobs. 3. Europe's DEI Mandate Is a WarningHB6 Is Our Shield o Over in Europe, they're rolling out ruleslike that Corporate Sustainability pushforcing companies to sink cash into DEI and ESG, whether it pays or not. Worse, they're pressuring those companies to ditch business with American or Alaskan firms that don't play along. It's a top-down order to chase alarmist fads over shareholder value. HB6 says Alaska's not in that game. We don't let Brussels dictate our funds divesting coal or propping up diversity quotasto appease bureaucrats. We stay free, focused on pure pecuniary returns. 4. ESG and DEI Flops Prove the Point o Check the track record: ESG and DEI don't guarantee wins. In 2022, the APF beat benchmarks with energy bets, while some ESG funds bled 20% chasing green dreams. Bed Bath & Beyond went big on ESGbust by '23. DEI's no silver bullet eithercompanies pour time and money into it, and where's the profit? HB6 keeps us clear of that mess. 5. Virtue Signaling's a Trap for Failing Firms o Here's a red flag: companies in a holelike retailers on the ropespivot to ESG or DEI for headlines and goodwill. It's a Hail Mary that usually flops. Think of chains slapping 'sustainability' or 'green' on everything, still shutting stores. Our funds aren't lifelines for losersHB6 ensures we back winners, not PR stunts 6. Alaska's Not Europe's Guinea Pig o Norway's fund toys with Net Zero on $1.6 trillionno dividends, no pressure, they can afford it. Our $80 billion's differentit's for Alaskans now, funding government and PFDs, not some global experiment. Europe's mandating DEI spendingfine for them. HB6 says we don't risk your money on unproven green tech or social checklists. Coal, firearmsif they pay, they stay. 7. Today's Cash Beats Tomorrow's Guesses o Some say coal's doomedclimate rules, market shifts. Maybe someday. Right now, it's kingenergy stocks carried us in 2022. Epstein's right in The Moral Case: fossil fuels fix more than Net Zero prevents. We need to look unemotionally at the data, at the profits, and invest for that. HB6 keeps us grounded: don't ditch winners for 'what-ifs.' If the tide turns, we'll adjustwithout Europe's forced DEI playbook. o Chairman Gray, committeeHB6's our stand: funds that deliver for Alaska, not dancing to Europe's tune or betting on trendy flops. You know a dollar earned beats a dollar flashed for clout. This bill's that promise. I'd appreciate your support. 1:10:12 PM JULIE MORRIS, Staff, on behalf of Representative McCabe, prime sponsor, offered the sectional analysis for HB 6, which read as follows [original punctuation provided]: Section 1 amends AS §37.10.071 to require fiduciaries of state funds to prioritize the financial interests of beneficiaries when investing public funds. This prohibits consideration of social, political, or ideological factors in investment decisions. Section 2 amends AS §37.10.220 to require the Alaska Retirement Management board to prioritize the financial interests of beneficiaries when investing public funds. This prohibits consideration of social, political, or ideological factors in investment decisions. Section 3 amends AS §37.10.220 to require the Alaska Permanent Fund Corporation board to prioritize the financial interests of beneficiaries when investing public funds. This prohibits consideration of social, political, or ideological factors in investment decisions. 1:11:50 PM VICE CHAIR KOPP asked for an example of Alaska's fiduciaries prioritizing an ideological goal over financial returns. 1:12:23 PM REPRESENTATIVE MCCABE shared his belief that neither the Alaska Permanent Fund Corporation (APFC) or the Alaska Retirement Management (ARM) Board had prioritized an ideological goal over financial returns. Nonetheless, he said he wanted to tighten up the statutory language to clarify the bill's intent in law. 1:13:18 PM REPRESENTATIVE MINA asked about the prudent investor rule for managers of the Alaska Permanent Fund ("the fund") and whether their decisions are ever governed by the legislature. 1:14:01 PM KEVIN MITCHELL, Executive Director, Alaska Permanent Fund Corporation (APFC), defined the prudent investor rule as investing in a fashion that would maximize the risk adjusted rate of return for the beneficiaries without personal considerations taken into account. Deviations from that have typically been divestiture efforts. He shared for example, that Russia's invasion of Ukraine resulted in many divestiture efforts around the world that Alaska did not partake in, as APFC was able to benefit from the fire sale of securities. He assured the committee that the fund has not made decisions based on anything other than maximizing the risk adjusted rate of return for the fund. REPRESENTATIVE MINA questioned the ways in which the legislature dictates the managers' investment decisions. MR. MITCHELL indicated that the legislature's involvement is related to asset classes. He said there's been a gradual evolution of allowed investments as the markets evolved over the past 50 years. 1:19:02 PM VICE CHAIR KOPP inquired about the unintended consequences of a fiduciary decision that's perceived to be ideological but is financially motivated. He considered an example involving climate change. MR. MITCHELL said the fiscal note is indeterminate because APFC shares that concern. He considered, for example, that a company in the fund's portfolio might misalign with the intent of the legislation. He said the bill sponsor's testimony assured him that the bill wouldn't prohibit the Board of Trustees ("the board") from making certain investments that would maximize return as long as it's not motivated by a desire to change something from a policy perspective. REPRESENTATIVE MCCABE emphasized that the sole focus of the bill is "fiscal." He shared an example and reiterated that the goal is to invest in companies that are making money regardless of the social implication. 1:23:16 PM VICE CHAIR KOPP recalled that Alaska has strict procurement laws and asked for confirmation. MR. MITCHELL shared his understanding that there is a list of countries that reflect concerns about the potential of US based investors deploying money to a hostile regime. However, he said he was not aware of an annual diligence requirement, but the general concept is circulated and has impacted the fund in the past. VICE CHAIR KOPP shared his belief that there is a federal list that the state is precluded from contracting with. REPRESENTATIVE MCCABE reiterated that he wants to make sure that the state is investing for financial gain. 1:28:47 PM REPRESENTATIVE VANCE asked whether these policies have led to missed opportunities. MR. MITCHELL stated that it hasn't been an issue for the fund and if anything, it has benefitted from its independent stance, historically. REPRESENTATIVE VANCE asked how much the fund would have lost if it divested during fire sale that ensued from the invasion of Ukraine. MR. MITCHELL said he did not know exact number, but many securities lost all their value for a period of time. He acknowledged interest payments were still being made on bonds, but there was no secondary market due to a lack of buyers. If anything, he suggested that it presented an opportunity to lean in if the belief was that Russia was going to pay on those securities, and if it fit the risk tolerance. He explained that Alaska was able to hit the "sweet spot" because it was able to hold on to its securities and exit in a rational fashion. He offered to follow up with the numbers. REPRESENTATIVE VANCE asserted that the fund had "disrespected the traditional will of the legislature" to maintain its focus on finances. She asked whether that is a safe assumption. MR. MITCHELL said there's two prongs to consider: the constitutional framework around the fund, which states that the money would be invested in income producing securities, and the statutory framework that provide the concepts of the prudent investor rule, fiduciary duties, and maximizing the risk adjusted rate of return. 1:39:33 PM REPRESENTATIVE MINA referred to AS 37.13.120 and asked whether investors ever consider social or political factors in their investment decisions. MR. MITCHELL answered, "certainly," and shared a hypothetical example of investing in wind turbines. REPRESENTATIVE MINA asked whether there would ever be a scenario where investors are prioritizing social and political factors over their statutory responsibility to maximize the expected return. MR. MITCHELL answered no. REPRESENTATIVE MINA asked what issue would be solved by the bill. 1:41:59 PM REPRESENTATIVE MCCABE gave the example of a fund that decided to invest for environment, social, and corporate governance (ESG) purposes, which could result in financial loss. This is the impetus of the bill, he said. Although it doesn't solve a current problem, it could solve a future one, he added, and shared several examples. REPRESENTATIVE MINA asked if one of the fund's managers decided to focus solely on diversity, equity, and inclusion (DEI) investments, whether they would be violating the prudent investor rule outlined in AS 37.13.120 under current law. REPRESENTATIVE MCCABE answered yes. He reiterated that the bill would have almost zero effect on the fund's current practices, and that it would emphasize the focus on pecuniary benefit only. 1:45:46 PM VICE CHAIR KOPP announced that HB 6 was held over.