Constitutional Amendments (Arguments For and Against) Abridged

Arguments For and Against Proposed Constitutional Amendment 5

2014

Arguments For

1. Balances short-term risk and long-term gain.
   The amendment would update investment standards to match best practices, placing an emphasis on diversifying investment of the Land Grant Permanent Fund. Diversification balances risks so that short-term swings in the market have less impact on an investment fund as a whole. Moreover, the newer standards would allow the State Investment Council to make some longer-term investments that are projected to give a high rate of return even if they are expected to have short-term fluctuations. This type of investment would help counterbalance inflation pressures on the Land Grant Permanent Fund.
2. Provides necessary portfolio diversification.
   Removing the limitation on foreign investment provides a tool to the State Investment Council that has been promoted as necessary to diversify investment portfolios and to earn higher returns on the investments.
3. Foreign investment component reflects modern business market.
   Since several large corporations operate and profit on a global basis, such as some soft drink manufacturers, fast food chains, computer hardware producers and financial service providers, arguably there is already a "foreign investment" component to many stocks listed on such domestic exchanges as the Dow Jones Industrial Average and the NASDAQ Stock Market.
4. Contains an additional safety measure.
   Raising the minimum reserve requirement for additional disbursements from the Land Grant Permanent Fund to $10 billion through fiscal year 2016 establishes a safety measure to insulate the fund in the short term while the State Investment Council explores greater diversity for investments from the fund.

Arguments Against

1. Encourages risky investments.
   Eliminating the 15 percent cap on foreign investments and adding the UPIA standard effectively encourages the State Investment Council to maximize returns at the risk of additional investment volatility. Such actions could jeopardize the value of the trust funds.
2. Foreign markets less stable than U.S. market.
   Many U.S. investors are cautious about making significant investments in foreign markets due to concerns about volatile political situations, insecure financial structures or a lack of business diversification in many countries. Currently and historically, the U.S. financial market, despite the inevitable recessions and market corrections, is the most stable market in the world.
3. Might erode fund value.
   As averaged over the past 25 years, the Land Grant Permanent Fund has earned an annual return on investment of 8.65 percent under current law — a more than respectable long-term rate of return. Changing the investment standards, and in particular removing the cap on foreign investments, could inject more volatility and risk and erode the value of the Land Grant Permanent Fund.