In relation to eligible investments in foreign equity securities by public retirement systems of the state

BILL NUMBER:S4005

Title of bill

An act to amend the retirement and social security law, in relation to eligible investments in foreign equity securities by public retirement systems of the state

Purpose

To permit public retirement systems of New York State to invest in the aggregate up to twelve and a half percent of assets of the fund in foreign equity securities.

Summary of provisions

This bill amends subdivision 8 of Section 117 of the Retirement and Social Security Law to increase the legal allowable investment from ten percent to twelve and a half percent of assets in foreign equity securities.

Existing law

Subdivision 8 of Section of the Retirement and Social Security Law is the provision in the legal list which expressly authorizes investments in foreign equity securities. Investments under this subdivision are currently limited to ten percent of a system's assets and the statutory provisions have not been amended since 1993.

Justification

Public employee retirement systems may only make investments to the extent permitted by law. Today, retirement systems rely principally upon the investment authorization contained in Section 177 of the Retirement and Social Security Law, the so-called "legal list." The authorizations in the statute have been expanded over time to reflect changes in the universe of investable capital assets and trends in institutional investment. The last change in the legal list occurred in 2010 with the enactment of Chapter 554 of the Laws of 2010 which increased from five to ten percent the amount of assets that a public retirement system of the state may invest in real estate. This change has proven to be beneficial to the public retirement systems.

As on June 30, 2014, the System's international equity portfolio returned 22 percent with a five-year return of 11 percent The allocation of assets within the System's portfolio, as well as the fund's overall structure, are continuously reviewed and periodically adjust to achieve prudent diversification of assets across a broad spectrum of capital market segments. As the international markets consistently perform within expectations, institutional investors will increasingly seek to capture global equity opportunities. Institutional investors typically will look to a broad and investable global equity benchmark, such as the MSCI ACWI IMI (Investable Market Index) or Blended MSCI ACWI (ex-US) index), to not only benchmark equity portfolio performance, but to achieve broad based global capitalization in the foreign public equities space. Increasing the legal authorization in this asset class will more closely align with

the System's current target allocation to international equities which is at 18 percent with a target range of 14-20 percent.

Additionally, the proposed amendment to subdivision 8 of Section 177 of the Retirement and Social Security Law represents the first such amendment to this statutory provision in 20 years.

Legislative history

This is a new bill.

Fiscal implications

There are no estimated fiscal implications.

Effective date

This act shall take effect immediately.