By: Duncan S.B. No. 1447

A BILL TO BE ENTITLED

AN ACT

relating to the investment authority of the Teacher Retirement System of Texas.

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

SECTION 1. Section 825.301, Government Code, is amended by adding Subsections (a-1), (a-2), (a-3), and (b-1) and amending Subsection (b) to read as follows:

(a-1) This subsection expires September 1, 2012, and applies to the investment and reinvestment of assets of the retirement system only if the investment or reinvestment is made before September 1, 2012. In addition to any investment or reinvestment authorized by Subsection (a), the board of trustees may buy and sell the following, only to efficiently manage and reduce the risk of the overall investment portfolio:

(1) futures contracts;

(2) options;

(3) options on futures contracts;

(4) forward contracts;

(5) swap contracts, including swap contracts with embedded options;

(6) any instrument or contract intended to manage transaction or currency exchange risk in purchasing, selling, or holding investments; and

(7) any other instrument commonly used by institutional investors to manage institutional investment portfolios.

(a-2) The board of trustees may delegate investment authority and contract with one or more private professional investment managers for investment and management of not more than 30 percent of the total assets held in trust by the retirement system. In a contract made under this subsection, the board of trustees shall specify any applicable policies, requirements, or restrictions, including criteria for determining the quality of investments or the use of standard rating services, that the board of trustees adopts for investments of the system. The board of trustees may not contract under this subsection for investment and management services to be performed on or after September 1, 2012.

(a-3) For the purpose of carrying out policy decisions made by the board of trustees, the board may delegate investment authority with respect to assets held by the retirement system to the executive director or the staff of the retirement system.

(b) In addition to the board's authority under Subsection (a-2), the [The] board of trustees may contract with private professional investment managers, advisors, and consultants to assist and advise the board and the staff of the retirement system in investing the assets of the retirement system.

(b-1) By accepting a delegation of investment authority under Subsection (a-2) or an engagement to assist or advise the board or the staff of the retirement system under Subsection (b), a professional investment manager, advisor, or consultant submits to the jurisdiction of the courts of this state in all proceedings arising from or related to performance of the delegated authority or engagement. An action relating to services rendered under this section shall be brought only in a state district court sitting in Travis County, Texas. Chapter 2260 does not apply to a contract under Subsection (a-2) or (b). This subsection does not waive any immunity of the retirement system.

SECTION 2. Subchapter D, Chapter 825, Government Code, is amended by adding Section 825.3011 to read as follows:

Sec. 825.3011. CERTAIN CONSULTATIONS CONCERNING INVESTMENTS. (a) In this section, "private investment fund," "reinvestment," and "restricted securities" have the meanings assigned by Section 552.143.

(b) Chapter 551 does not require the board of trustees to confer with one or more employees, consultants, or legal counsel of the retirement system or with a third party, including representatives of an issuer of restricted securities or a private investment fund, in an open meeting if the only purpose of the conference is to receive information from or question the employees, consultants, or legal counsel of the retirement system or the third party relating to:

(1) an investment or a potential investment by the board of trustees in a private investment fund; or

(2) the purchase, holding, or disposal of restricted securities or a private investment fund's investment in restricted securities if, under Section 552.143, the information discussed would be confidential and excepted from the requirements of Section 552.021 if the information was included in the records of a governmental body.

(c) This section applies notwithstanding Section 825.115.

SECTION 3. Subchapter D, Chapter 825, Government Code, is amended by adding Section 825.3012 to read as follows:

Sec. 825.3012. INVESTMENT IN CERTAIN HEDGE FUNDS LIMITED. (a) For the purposes of this section, "hedge fund" means a private investment vehicle that:

(1) is not registered as an investment company;

(2) issues securities only to accredited investors or qualified purchasers under an exemption from registration; and

(3) engages primarily in the strategic trading of securities and other financial instruments.

(b) Notwithstanding any provision of Section 825.301, not more than five percent of the value of the total investment portfolio of the retirement system may be invested in hedge funds.

(c) The percentage of the value described by Subsection (b) is determined by reference to the value of the total investment portfolio of the retirement system as of the date the retirement system executes the subscription documents for each hedge fund investment.

SECTION 4. This Act takes effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, this Act takes effect September 1, 2007.