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Regular Session, 2010
SENATE BILL NO. 594
BY SENATORS B. GAUTREAUX AND APPEL
RETIREMENT SYSTEMS. Relative to public retirement systems, provides relative to
investments. (7/1/10)
AN ACT1
To amend and reenact R.S. 11:263(D), to enact R.S. 11:267.1, and to repeal R.S. 11:263(E),2
267, and 268, relative to public retirement systems; to provide relative to the3
prudent-man rule, investment authority and restrictions, and asset allocation; to4
provide for an effective date; and to provide for related matters.5
Notice of intention to introduce this Act has been published.6
Be it enacted by the Legislature of Louisiana:7
Section 1. R.S. 11:263(D) is hereby amended and reenacted and R.S. 11:267.1 is8
hereby enacted to read as follows: 9
§263. Prudent-man rule; investments10
* * *11
D.(1) Notwithstanding the prudent-man rule, no governing authority of any system12
or fund governed by this Subpart shall invest more than fifty-five percent of the total13
portfolio in equities, except as provided in Paragraph (2) of this Subsection or in R.S.14
11:267.15
(2) The governing authority of any system to which R.S. 11:267(A) is inapplicable16
may invest more than fifty-five percent of the total portfolio in equities, so long as not more17 SB NO. 594
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than sixty-five percent of the total portfolio is invested in equities and at least ten percent of1
the total equity portfolio is invested in one or more index funds which seek to replicate the2
performance of the chosen index or indices. The investment policies of the individual3
systems, plans, and funds shall be structured to preserve and enhance principal over4
the long term and provide adequate liquidity and cash flow for the payment of benefits.5
The investments shall be diversified to minimize the risk of significant losses unless it6
is clearly prudent not to do so.7
* * *8
§267.1. Investment authority and restrictions; asset allocation9
A. In order to achieve an acceptable risk return asset allocation, the10
provisions of this Section shall be applicable to every system, plan, and fund11
governed by this Subpart.12
B. For purposes of this Subpart, the term "equities" shall not include13
alternative investments. As used in this Section, the term "alternative14
investments" shall include but shall not be limited to the following:15
(1) Privately placed investment pools, including without limitation16
private investment funds.17
(2) Leveraged buyout funds.18
(3) Mezzanine funds.19
(4) Workout funds.20
(5) Debt funds.21
(6) Venture capital funds.22
(7) Merchant banking funds.23
(8) Funds of funds and secondary funds.24
(9) Distressed debt and equity investments, including without limitation25
cases in which the investor may take control of the issuer.26
(10) Debt derivative and equity derivative instruments of all types.27
C. At least fifteen percent of the portfolio of each system, plan, or fund28
shall be invested in core fixed-income securities with an average quality rating29 SB NO. 594
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of "A" or better as rated by a nationally recognized rating agency.1
D. No more than sixty-five percent of the total portfolio of a system, plan,2
or fund shall be invested in equities. At least ten percent of the total equity3
portfolio of each system, plan, or fund shall be invested in one or more index4
funds which seek to replicate the performance of the chosen index or indices.5
E. No more than twenty percent of the portfolio of a system, plan, or6
fund shall be invested in alternative investments, inclusive of committed capital.7
F. Each investment shall have a mechanism for exit, and the board of8
trustees shall be given notice of such mechanism prior to committing assets to9
any investment.10
G. There shall be no use of financial leverage by a system, plan, or fund11
in the purchase of direct real estate. There shall be no new direct ownership of12
real estate after June 30, 2010, unless acquired for use as an office building for13
a system, plan, or fund for the convenient transaction of its own business, and14
any real estate adjacent to or associated with such office building. Portions of15
any building not used for the business of the system, plan, or fund may be16
rented by the system, plan, or fund to others. In no case shall the amount17
invested by a system, plan, or fund in office property exceed ten percent of the18
system assets.19
H. Any system not in compliance with the limitations imposed by this20
Section on July 1, 2010, shall make a good faith effort to come into compliance21
within a transition period of two years and in any event as soon as practicable22
thereafter. During this transition period, the system, plan, or fund shall not23
increase the percentage of assets committed to be invested in alternative24
investments, however, it shall be permitted during such period to continue to25
make investments as required by the commitments of the system, fund, or plan26
to alternative investments existing before the enactment of this Section.27
I. Each board of trustees of a system, plan, or fund shall adopt a code of28
ethics for the consideration of, investment in, and disposition of alternative29 SB NO. 594
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investments. 1
Section 2. R.S. 11:263(E), 267, and 268 are hereby repealed.2
Section 3. This Act shall become effective on July 1, 2010; if vetoed by the governor3
and subsequently approved by the legislature, this Act shall become effective on July 1,4
2010, or on the day following such approval by the legislature, whichever is later.5
The original instrument and the following digest, which constitutes no part of the legislative
instrument, were prepared by Lauren B. Bailey.
DIGEST
Present law (R.S. 11:263(D)) authorizes certain La. public retirement or pension systems,
plans, or funds to invest up to 55% of the individual system's total portfolio in equities.
Specifies that these plans may invest more than 55% of the total portfolio in equities, so long
as not more than 65% of the total portfolio is invested in equities and at least 10% of the
total equity portfolio is invested in one or more index funds which seek to replicate the
performance of the chosen index or indices. Present law applies to:
(1)Clerks' of Court Retirement and Relief Fund
(2)District Attorneys' Retirement System
(3)Firefighters' Retirement System
(4)Municipal Employees' Retirement System of Louisiana
(5)Municipal Police Employees' Retirement System
(6)Parochial Employees' Retirement System of Louisiana
(7)Registrars of Voters Employees' Retirement System
(8)Sheriffs' Pension and Relief Fund
(9)State Police Pension and Retirement System
(10)Harbor Police Retirement System
Present law (R.S. 11:267) requires certain La. public retirement or pension systems, plans,
or funds to invest 10% of the equity portfolio, regardless of the amount of the system's
allocation to such equities, in one or more index funds which seek to replicate the
performance of the chosen index or indices. Allows the systems to invest up to 65% of the
total portfolio in equities. Present law provides that, for purposes of present law, the term
"equity" shall mean ownership of a corporation represented by shares that are publicly traded
on a recognized exchange, including the National Association of Securities Dealers
Automated Quotation (NASDAQ). Present law applies to:
(1)Louisiana State Employees' Retirement System
(2)Teachers' Retirement System of Louisiana SB NO. 594
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(3)Louisiana School Employees' Retirement System
(4)Assessors' Retirement Fund
Proposed law repeals present law divisions and definition. Proposed law provides for a
single standard. Provides that each of the systems, plans, or funds may invest up to 65% of
its portfolio in equities. Requires 10% of the total equity portfolio of each system, plan, or
fund to be invested in one or more index funds which seek to replicate the performance of
the chosen index or indices.
Present law provides that the prudent-man rule shall require each fiduciary of a retirement
or pension system, plan or fund and each board of trustees acting collectively on behalf of
each system, plan, or fund to act with the care, skill, prudence, and diligence under the
circumstances prevailing that a prudent institutional investor acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like character and
with like aims. Present law further provides that this standard requires the exercise of
reasonable care, skill, and caution, and is to be applied to investments not in isolation, but
in the context of the trust portfolio, and as part of an overall investment strategy, which shall
include an asset allocation study and plan for implementation thereof, incorporating risk and
return objectives reasonably suitable to that trust.
Proposed law (R.S. 11:263(D)) adds to the prudent-man rule that the investment policies of
the systems shall be structured to preserve and enhance principal over the long term and
provide adequate liquidity and cash flow for the payment of benefits. Proposed law also
provides that the investments shall be diversified to minimize the risk of significant losses
unless it is clearly prudent not to do so.
Proposed law (R.S. 11: 267.1) provides specific investment authority and restrictions
relative to the asset allocation of the state and statewide retirement systems, plans, and funds
and the Harbor Police Retirement System.
Proposed law provides that the term "equities" shall not include alternative investments.
Specifies that "alternative investments" include: (i) privately placed investment pools,
including without limitation private investment funds; (ii) leveraged buyout funds; (iii)
mezzanine funds; (iv) workout funds; (v) debt funds; (vi) venture capital funds; (vii)
merchant banking funds; (viii) funds of funds and secondary funds; (ix) distressed debt and
equity investments, including without limitation cases in which the investor may take control
of the issuer; and (x) debt derivative and equity derivative instruments of all types.
Proposed law provides that no more than 20% of the portfolio shall be invested in
"alternative investments," inclusive of committed capital.
Proposed law mandates at least 15% of the portfolio shall be invested in core fixed-income
securities with an average quality rating of "A" or better as rated by a nationally recognized
rating agency.
Proposed law provides that all investments shall have a mechanism for exit and the
respective boards of trustees shall be given notice of such mechanism prior to committing
assets to any investment.
Proposed law prohibits the use of financial leverage in the purchase of direct real estate.
Proposed law further prohibits any new direct ownership of real estate unless acquired for
use as a system's, plan's, or fund's office for the convenient transaction of its own business;
provided that portions of such buildings not used for its own business may be rented by the
system, plan, or fund to others; provided, further, that the amount invested by a system, plan,
or fund in office property shall not exceed 10% of the assets. SB NO. 594
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Proposed law provides that any system, plan, or fund which is not in compliance with the
limitations imposed shall make a good faith effort to come into compliance within a
transition period of two years and in any event as soon as practicable. Proposed law provides
that during the transition period the system, plan, or fund shall not increase the percentage
of assets committed to be invested in alternative investments but shall be permitted to
continue to make investments as required by the existing commitments of the system, fund,
or plan to alternative investments made before the enactment of proposed law.
Proposed law requires the respective boards of trustees of the systems, funds or plans shall
adopt a code of ethics for the consideration of, investment in, and disposition of alternative
investments.
Proposed law repeals obsolete provisions of present law.
Effective July 1, 2010.
(Amends R.S. 11:263(D); adds R.S. 11:267.1; repeals R.S. 11:263(E), 267, and 268)