REPORT TITLE:
ERS Investment in LLCs


DESCRIPTION:
Enables the ERS to invest in LLCs.  (SD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1282
THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO INVESTMENTS OF THE EMPLOYEES' RETIREMENT SYSTEM.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  Section 88-119, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "88-119  Investments.  Investments may be made in:
 
 4      (1)  Real estate loans and mortgages.  Obligations (as
 
 5           defined in section 431:6-101) of any of the following
 
 6           classes:
 
 7           (A)  Obligations secured by mortgages of nonprofit
 
 8                corporations desiring to build multirental units
 
 9                (ten units or more) subject to control of the
 
10                government for occupancy by families displaced as
 
11                a result of government action;
 
12           (B)  Obligations secured by mortgages insured by the
 
13                Federal Housing Administration;
 
14           (C)  Obligations for the repayment of home loans made
 
15                under the Servicemen's Readjustment Act of 1944 or
 
16                under Title II of the National Housing Act;
 
17           (D)  Other obligations secured by first mortgages on
 
18                unencumbered improved real estate owned in fee
 
19                simple; provided that the amount of the obligation
 

 
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 1                [shall not] at the time investment is made therein
 
 2                shall not exceed eighty per cent of the value of
 
 3                the real estate and improvements mortgaged to
 
 4                secure it, and except that the amount of the
 
 5                obligation at the time investment is made therein
 
 6                may exceed eighty per cent but no more than ninety
 
 7                per cent 
 
 8                of the value of the real estate and improvements
 
 9                mortgaged to secure it; provided further that the
 
10                obligation is insured or guaranteed against
 
11                default or loss under a mortgage insurance policy
 
12                issued by a casualty insurance company licensed to
 
13                do business in the State.  The coverage provided
 
14                by the insurer should be sufficient to reduce the
 
15                system's exposure to not more than eighty per cent
 
16                of the value of the real estate and improvements
 
17                mortgaged to secure it.  Such insurance coverage
 
18                shall remain in force until the principal amount
 
19                of the obligation is reduced to eighty per cent of
 
20                the market value of the real estate and
 
21                improvements mortgaged to secure it, at which time
 
22                the coverage shall be subject to cancellation
 
23                solely at the option of the board of trustees.
 

 
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                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1                Real estate shall not be deemed to be encumbered
 
 2                within the meaning of this subparagraph by reason
 
 3                of the existence of any of the restrictions,
 
 4                charges, or claims described in section 431:6-308;
 
 5           (E)  Other obligations secured by first mortgages of
 
 6                leasehold interests in improved real estate;
 
 7                provided that:
 
 8                (i)  Each such leasehold interest at such time
 
 9                     shall have a current term extending at least
 
10                     two years beyond the stated maturity of the
 
11                     obligation it secures; and
 
12               (ii)  The amount of the obligation [shall not] at
 
13                     the time investment is made therein shall not
 
14                     exceed eighty per cent of the value of the
 
15                     respective leasehold interest and
 
16                     improvements, and except that the amount of
 
17                     the obligation, at the time investment is
 
18                     made therein, may exceed eighty per cent but
 
19                     no more than ninety per cent of the value of
 
20                     the leasehold interest and improvements
 
21                     mortgaged to secure it;
 
22                provided further that the obligation is insured or
 
23                guaranteed against default or loss under a
 

 
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                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1                mortgage insurance policy issued by a casualty
 
 2                insurance company licensed to do business in the
 
 3                State.  The coverage provided by the insurer
 
 4                should be sufficient to reduce the system's
 
 5                exposure to not more than eighty per cent of the
 
 6                value of the leasehold interest and improvements
 
 7                mortgaged to secure it.  Such insurance coverage
 
 8                shall remain in force until the principal amount
 
 9                of the obligation is reduced to eighty per cent of
 
10                the market value of the leasehold interest and
 
11                improvements mortgaged to secure it, at which time
 
12                the coverage shall be subject to cancellation
 
13                solely at the option of the board of trustees;
 
14           (F)  Obligations for the repayment of home loans
 
15                guaranteed by the department of Hawaiian home
 
16                lands pursuant to section 214(b) of the Hawaiian
 
17                Homes Commission Act, 1920; and
 
18           (G)  Obligations secured by second mortgages on
 
19                improved real estate for which the mortgagor
 
20                procures a second mortgage on the improved real
 
21                estate for the purpose of acquiring the
 
22                leaseholder's fee simple interest in the improved
 
23                real estate; provided that any prior mortgage does
 

 
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                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1                not contain provisions [which] that might
 
 2                jeopardize the security position of the retirement
 
 3                system or the borrower's ability to repay the
 
 4                mortgage loan.
 
 5           The board of trustees may retain such real estate,
 
 6           including leasehold interests therein, as it may
 
 7           acquire by foreclosure of mortgages or in enforcement
 
 8           of security, or as may be conveyed to it in
 
 9           satisfaction of debts previously contracted; provided
 
10           that all such real estate, other than leasehold
 
11           interests, shall be sold within five years after
 
12           acquiring the same, subject to extension by the
 
13           governor for additional periods not exceeding five
 
14           years each, and that all such leasehold interests shall
 
15           be sold within one year after acquiring the same,
 
16           subject to extension by the governor for additional
 
17           periods not exceeding one year each;
 
18      (2)  Government obligations, etc.  Obligations of any of the
 
19           following classes:
 
20           (A)  Obligations issued or guaranteed as to principal
 
21                and interest by the United States or by any state
 
22                thereof or by any municipal or political
 
23                subdivision or school district of any of the
 

 
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                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1                foregoing; provided that principal of and interest
 
 2                on such obligations are payable in currency of the
 
 3                United States; or sovereign debt instruments
 
 4                issued by agencies of, or guaranteed by foreign
 
 5                governments;
 
 6           (B)  Revenue bonds, whether or not permitted by any
 
 7                other provision hereof, of the State or any
 
 8                municipal or political subdivision thereof,
 
 9                including the board of water supply of the city
 
10                and county of Honolulu, and street or improvement
 
11                district bonds of any district or project in the
 
12                State; and
 
13           (C)  Obligations issued or guaranteed by any federal
 
14                home loan bank including consolidated federal home
 
15                loan bank obligations, the Home Owner's Loan
 
16                Corporation, the Federal National Mortgage
 
17                Association, or the Small Business Administration;
 
18      (3)  Corporate obligations.  [Investments may be made in
 
19           below] Below investment grade or nonrated debt
 
20           instruments, foreign or domestic, in accordance with
 
21           investment guidelines adopted by the board of trustees;
 
22      (4)  Preferred and common stocks.  Shares of preferred or
 
23           common stock of any corporation created or existing
 

 
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                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1           under the laws of the United States or of any state or
 
 2           district thereof or of any country;
 
 3      (5)  Obligations eligible by law for purchase in the open
 
 4           market by federal reserve banks;
 
 5      (6)  Obligations issued or guaranteed by the International
 
 6           Bank for Reconstruction and Development, the Inter-
 
 7           American Development Bank, the Asian Development Bank,
 
 8           or the African Development Bank;
 
 9      (7)  Obligations secured by collateral consisting of any of
 
10           the securities or stock listed above and worth, at the
 
11           time the investment is made, at least fifteen per cent
 
12           more than the amount of the respective obligations;
 
13      (8)  Insurance company obligations.  Contracts and
 
14           agreements supplemental thereto providing for
 
15           participation in one or more accounts of a life
 
16           insurance company authorized to do business in Hawaii,
 
17           including its separate accounts, and whether the
 
18           investments allocated thereto are comprised of stocks
 
19           or other securities or of real or personal property or
 
20           interests therein;
 
21      (9)  Interests in real property.  Interests in improved or
 
22           productive real property in which, in the informed
 
23           opinion of the board of trustees, it is prudent to
 

 
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                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1           invest funds of the system.  For purposes of this
 
 2           paragraph, "real property" includes any property
 
 3           treated as real property either by local law or for
 
 4           federal income tax purposes.  Investments in improved
 
 5           or productive real property may be made directly or
 
 6           through pooled funds, including common or collective
 
 7           trust funds of banks and trust companies, group or unit
 
 8           trusts, limited partnerships, limited liability
 
 9           companies, investment trusts, title-holding
 
10           corporations recognized under section [501(c)(2) or
 
11           section 501(c)(23)] 501(c) of the Internal Revenue Code
 
12           of 1986, as amended, and other pooled funds invested on
 
13           behalf of the system by investment managers retained by
 
14           the system;
 
15     (10)  Other securities and futures contracts.  Securities and
 
16           futures contracts in which in the informed opinion of
 
17           the board of trustees it is prudent to invest funds of
 
18           the system, including currency, interest rate, bond,
 
19           and stock index futures contracts and options on such
 
20           contracts to hedge against anticipated changes in
 
21           currencies, interest rates, and bond and stock prices
 
22           that might otherwise have an adverse effect upon the
 
23           value of the system's securities portfolios; covered
 

 
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                                     S.B. NO.           S.D. 2
                                                        
                                                        

 
 1           put and call options on securities; and stock; whether
 
 2           or not the securities, stock, futures contracts, or
 
 3           options on futures are expressly authorized by or
 
 4           qualify under the foregoing paragraphs, and
 
 5           notwithstanding any limitation of any of the foregoing
 
 6           paragraphs (including paragraph (4)); and
 
 7     (11)  Private placements.  Investments in institutional blind
 
 8           pool limited partnerships or direct investments [which]
 
 9           that make private debt and equity investments in
 
10           privately held companies."
 
11      SECTION 2.  Statutory material to be repealed is bracketed.
 
12 New statutory material is underscored.
 
13      SECTION 3.  This Act shall take effect upon its approval.