2001 Alaska Statutes
Title 37 PUBLIC FINANCE
Chapter 37.13. ALASKA PERMANENT FUND AND CORPORATION
Sec. 37.13.120. Investment responsibilities of the board.

(a) The prudent-investor rule shall be applied by the board in the management and investment of fund assets. The prudent-investor rule as applied to investments of the fund means that in making investments the board shall exercise the judgment and care under the circumstances then prevailing that an institutional investor of ordinary prudence, discretion, and intelligence exercises in the management of large investments entrusted to it not in regard to speculation but in regard to the permanent disposition of funds, considering probable safety of capital as well as probable income.

(b) The fund assets shall only be used for income-producing investments.

(c) The board shall maintain a reasonable diversification among investments unless under the circumstances it is clearly prudent not to do so.

(d) The board shall submit long-range and quarterly investment reports to the Legislative Budget and Audit Committee.

(e) The corporation may not borrow money or guarantee from principal of the fund the obligations of others except as provided in this subsection. With respect to real property investments of the fund, the corporation may, through an entity in which the investment is made, borrow money if the borrowing is without recourse to the corporation and the fund.

(f) The board may enter into and enforce all contracts necessary, convenient or desirable for purposes of the corporation.

(g) Subject to the limitations contained in this section, the board may invest fund assets at the competitive national market rates or prices that are applicable to each investment only in

(1) obligations of, or obligations insured by or guaranteed by, the United States or agencies or instrumentalities of the United States;

(2) obligations secured by reserves paid in by the United States or agencies or instrumentalities of the United States or obligations of corporations in which the United States is a shareholder or member;

(3) certificates of deposit and term deposits of United States domestic banks that are members of the Federal Deposit Insurance Corporation and that may be readily sold in a secondary market at prices reflecting fair value or that are fully secured at all times as to payment of principal and interest as described in (m) of this section;

(4) certificates of deposit and term deposits of federally chartered savings and loan associations in Alaska that are fully secured at all times as to payments of principal and interest as described in (m) of this section;

(5) certificates of deposit and term deposits of mutual savings banks in Alaska that are fully secured at all times as to payments of principal and interest as described in (m) of this section;

(6) fixed-term certificates of indebtedness of federally insured credit unions in Alaska that are fully secured at all times as to payments of principal and interest as described in (m) of this section;

(7) debt instruments that have been issued by domestic entities and that are rated investment grade, or debt instruments of comparable quality issued by nondomestic entities;

(8) short-term

(A) promissory notes that have been issued by domestic entities and that are rated investment grade; or

(B) promissory notes of comparable quality issued by nondomestic entities, the interest on which may be payable in either United States dollars or nondomestic currencies;

(9) bankers' acceptances drawn on and accepted by United States banks each of which has a combined capital and surplus aggregating at least $200,000,000;

(10) repurchase agreements, the securities underlying the agreements being any of the items in (1) - (6) of this subsection;

(11) the portions of business and industrial loans made under the Rural Development Act of 1972 that are guaranteed by the Farmers Home Administration;

(12) the guaranteed portion of Farmers Home Administration loans;

(13) notes secured by mortgages granting a first lien on residential real estate improved by completed buildings if the mortgages are insured by a private mortgage insurance corporation that is authorized to do business in this state and has combined capital and surplus aggregating at least $20,000,000 and if loan-to-value ratios do not exceed 90 percent; however, mortgage insurance is not necessary for residential loans having a loan-to-value ratio of less than 70 percent and the minimum coverage of other residential loans shall be 10 percent for those having a loan-to-value ratio greater than 70 percent but less than 90 percent and 20 percent for those having a loan-to-value ratio of 90 percent;

(14) preferred and common stock and other equity interests in entities organized in the United States;

(15) certificates of deposit, term deposits, or bankers' acceptances, that are issued by a United States or nondomestic bank or trust company located outside of the United States and are denominated in United States or nondomestic currency if either (A) they may be readily sold in a secondary market at prices reflecting fair value, or (B) the issuing bank or trust company has capital, surplus, and retained earnings at the date of issue equaling at least $500,000,000; investments made under this paragraph are not subject to the collateral requirements for domestic certificates under (m) of this section;

(16) equity interests in, and debt obligations secured by mortgages granting a first lien on, real estate if the real estate is located in the United States, is professionally managed, and is

(A) improved by completed and substantially rented buildings; or

(B) located within the market area of real property in which the fund holds an existing interest and is acquired

(i) for the purpose of creating or adding to a portfolio of similar properties; or

(ii) to retain or service the needs of existing tenants;

(17) securities of nondomestic governments and nondomestic government agencies, the principal of, or interest on, which is payable in either United States dollars or nondomestic currencies;

(18) securities of other nondomestic entities whose dividends, if any, may be payable in either United States dollars or nondomestic currencies;

(19) taxable municipal or state debt instruments that are rated investment grade;

(20) shares in a money market or short-term investment fund that has either collateral securities of a type authorized elsewhere in this section as acceptable collateral or securities of similar quality to those authorized elsewhere in this section as acceptable collateral;

(21) interests in a titleholding entity, real estate investment trust, real estate operating company, or other entity whose assets consist predominantly of

(A) equity interests in real property or debt obligations secured by mortgages granting a lien on real property, so long as the property is of a type in which the corporation is otherwise permitted to invest fund assets under this subsection; or

(B) interests in other entities in which the corporation is permitted to invest fund assets under this paragraph.

(h) The board may enter into future contracts for the sale of investments purchased under (g) of this section, or for the sale of nondomestic currencies, only for the purpose of hedging an existing equivalent ownership position in these investments or as a means of implementing asset allocation strategies.

(i) The fund may at no time own more than five percent of the voting stock of a corporation unless the issuing corporation is an entity in which the Alaska Permanent Fund Corporation is permitted to invest fund assets under (g)(21) of this section. Domestic stocks, except for bank and insurance company stocks and stocks of corporations in which the Alaska Permanent Fund Corporation is permitted to invest fund assets under (g)(21) of this section, must be listed at the date of purchase on an exchange registered with the Securities and Exchange Commission. Except as otherwise permitted under (k) of this section, at the time of each investment, the aggregate investment of the fund in each stated category of investment may not exceed the following stated percentage of the total investments of the fund:

(1) mortgages under (g)(13) of this section - 15 percent;

(2) real estate investments under (g)(16) and (21) of this section - 15 percent;

(3) certificates of deposit, term deposit, or bankers' acceptances under (g)(15) of this section - 20 percent;

(4) interests in domestic and nondomestic entities under (g)(14) and (18) of this section - 55 percent.

(j) The assets of the fund may not be used for the purchase of debt instruments of a corporation or other entity upon which any regular interest payment has been defaulted within five years before purchase, except debt instruments never in default but which have been outstanding for less than five years.

(k) The board shall establish and from time to time as necessary modify guidelines for the investment of the assets of the fund. Before adoption of any guidelines, the guidelines shall be reported to the Legislative Budget and Audit Committee for review and comment. Notwithstanding (g) of this section or the percentage investment limitations under (i) of this section and so long as doing so satisfies the prudent-investor rule under (a) of this section, the board may invest up to five percent of the total assets of the fund in either or a combination of the following:

(1) other types of investments not specifically listed in (g) of this section;

(2) categories of investment subject to the percentage investment limitations established in (i) of this section, even though investing additional assets in a category will cause the aggregate investment in the category to exceed the applicable percentage limitation.

( l) The board shall invest the assets of the fund in in-state investments to the extent in-state investments are available if the in-state investments

(1) have a risk level and expected yield comparable to alternate investment opportunities; and

(2) are included in the list of permissible investments in (g) of this section.

(m) Certificates of deposit or the equivalent instruments that are not of a quality that may be readily sold in a secondary market at prices reflecting fair value must be secured by a pledge as collateral of

(1) investments authorized for the fund under (g)(1), (2), (4), or (8) - (10) of this section;

(2) obligations of the state or instrumentalities of the state that are rated at least "A" by a major bond rating service and have a demonstrated secondary market;

(3) the guaranteed portion of Federal Small Business Administration loans;

(4) the portion of first lien real estate mortgages guaranteed by the federal Department of Veterans Affairs; or

(5) notes secured by mortgages granting a first lien on commercial or residential real estate improved by completed buildings if the originating financial institution retains at least 25 percent of the mortgage until maturity.

(n) Investments or obligations pledged as collateral under (m) of this section must have value at least equal to the face value of the certificates of deposit being secured. The board may require substitution of collateral in order to ensure continued satisfaction of the requirements set out in (m) of this section.

(o) For purposes of (g) of this section, "investment grade" means a Standard & Poor's Corporation rating BBB or better, or Moody's Investors Service, Inc., rating of Baa or better, including a rating with a "+" or "-" designation or other variations that occur within these ratings, or a comparable rating by another nationally recognized rating organization.

(p) For purposes of applying the percentage investment limitations established in (i) of this section, if the board determines that a particular form of investment authorized under (g) of this section may appropriately be classified in more than one category of investment, it may elect the category to which that form of investment is assigned.