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.