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SPONSOR: |
HAFC |
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HB |
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SHORT TITLE: |
Clarify Investment Guidelines |
SB |
CS/CS/907/HAFCS |
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ANALYST: |
Neel |
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NFI |
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(Parenthesis ( ) Indicate Revenue Decreases)
LFC files
SUMMARY
Synopsis
of Bill
House Appropriations and Finance Committee
Substitute for House Taxation and Revenue Committee Substitute for Senate
Finance Committee Substitute for Senate Bill 907 amends sections of statute
that govern the investment criteria and standards for the Land Grant Permanent
Fund (LGPF) and the Severance Tax Permanent Fund (STPF). The bill allows the
investment in other investment vehicles authorized by the State Investment
Council (SIC) provided that they are reviewed and approved by the Legislative
Finance Committee (LFC). SIC is required
to provide investment performance for the prior quarter to the LFC along with a
detailed break down on investment types.
The bill also notes that not more than 5 percent of the investments of
the LGPF and STPF may be invested in the “other type of investments” category
allowed pursuant to SB 907. Last, the
bill provides that the Prudent Investor Act shall govern investment in the LGPF
and STPF.
Significant
Issues
The prudent investor
rule underpins the current set of investment statutes. The essence of the rule
is:
“...to observe how men of prudence, discretion
and intelligence manage their own affairs, not in regard to speculation, but in
regard to permanent disposition of their funds, considering the probable income
as well as the probable safety of the capital to be invested.”
The
New Mexico “Uniform Prudent Investor Act” (45-7-601, NMSA, 1978 to 45-7-612,
NMSA, 1978) states a trustee shall invest and manage trust assets as a prudent
investor would, by considering the purposes, terms, distribution requirements
and other circumstances of the trust. In
satisfying this standard, the trustee shall exercise reasonable care, skill and
caution. A trustee's investment and
management decisions respecting individual assets must be evaluated not in isolation
but in the context of the trust portfolio as a whole and as a part of an
overall investment strategy having risk and return objectives reasonably suited
to the trust. Trustees shall consider
the following circumstances when managing trust assets:
1.
general economic
conditions;
2.
the possible
effect of inflation or deflation;
3.
the expected tax
consequences of investment decisions or strategies;
4.
the role that
each investment or course of action plays within the overall trust portfolio,
which may include financial assets, interest in closely held enterprises,
tangible and intangible personal property and
real property;
5.
the expected
total return from income and the appreciation of capital;
6.
other resources
of the beneficiaries; and
7.
needs for
liquidity, regularity of income and preservation or appreciation of capital;
and
8.
an asset's special relationship or special value, if
any, to the purposes of the trust or to one or more of the beneficiaries.
9.
A trustee shall
make a reasonable effort to verify facts relevant to the investment and
management of trust assets.
In Addition:
10.
A trustee may
invest in any kind of property or type of investment consistent with the
standards of the Uniform Prudent Investor Act [45‑7‑601 to 45‑7‑612
NMSA 1978].
11.
A trustee who has
special skills or expertise, or is named trustee in reliance upon the trustee's
representation that the trustee has special skills or expertise, has a duty to
use those special skills or expertise.
FISCAL IMPLICATIONS
· This
bill will broaden
investment choices to include asset classes that are currently precluded. These include derivatives and other vehicles.
According to the SIC’s actuary, the inability to invest in a broader diversity
of investment has compromised returns in the LGPF and STPF.
OTHER SUBSTANTIVE ISSUES
SN/njw:yr