Overview of Major State Investment Funds, and Significant Related Legislation PRESENTED TO SENATE FINANCE COMMITTEE LEGISLATIVE BUDGET BOARD STAFF, FEBRUARY 2020
Market Value of Major State Investment Funds by Agency for Fiscal Year 2018 FEBRUARY 19, 2020 LEGISLATIVE BUDGET BOARD ID: 6414 2
Performance Compared to Benchmarks and Percent Externally Managed Fiscal Year 2018 Gross Return (Top) and Benchmark (Bottom) Fiscal Year 2018 Percent of Fund Balance Externally Managed Fiscal Year 2018 FEBRUARY 19, 2020 LEGISLATIVE BUDGET BOARD ID: 6414 3
Historical Performance and Contributions/Distributions for TRS Yearly Returns for the TRS Trust Fund Contributions and Distributions in Millions of 2001-2018 Dollars to/from TRS Trust Fund 2001-2018 Contributions include investment gains and losses. FEBRUARY 19, 2020 LEGISLATIVE BUDGET BOARD ID: 6414 4
Significant Legislation – 86 th Legislature • ESF – Senate Bill 69 • Allows the Comptroller to invest up to 75% of ESF in TESTIF • Prior law allowed % of the ESF above the Sufficient Balance in TESTIF • TRS – Senate Bill 12 • Increases State, Employer, and Employee contributions to TRS Pension Trust Fund in varying steps over 5 years • Projected $954 million additional contributions for 2020-21 biennium • $524 million of total represents state cost appropriated from the ESF • PSF – House Bill 4388 • Creates PSF Liquid account to invest certain funds from SLB portion of PSF • Adds quarterly reporting requirements for SBOE/SLB • TEA/GLO study on PSF distributions due June 1, 2020 • PSF – House Joint Resolution 151 • Allows SBOE or SLB to distribute up to $600 million of revenue annually from PSF land/properties to ASF • Prior law allowed only SLB to distribute up to $300 million annually FEBRUARY 19, 2020 LEGISLATIVE BUDGET BOARD ID: 6414 5
Permanent School Fund History of Major Legislation Since 2000 Year / Bill Purpose Description 2001 (HB 3558) School Land Board • Prior authority allowed use of proceeds from PSF land sales to buy other land. (SLB) investment • Bill allowed proceeds from land sales AND mineral lease and royalty revenue to authority broadened deposited into a special account -- what is now the Real Estate Special Fund Account (RESFA) -- for purchase of other land OR mineral and royalty interests. • Any funds unused by SLB after 2 years reverted to the PSF corpus invested by SBOE 2003 (HJR 68) PSF distribution PSF (SBOE) methodology for distributions from PSF to ASF changed from all dividend and methodology revised interest income, to “total return” (% of average corpus market value over 16 trailing quarters), and not to exceed 6%. 2005 (HB 2217) SLB investment • SLB authority to keep and invest proceeds further broadened to include infrastructure, 2007 (HB 3699) authority broadened other real estate investments, and to pay professional fees related to investments. • Two year window for SLB to invest funds eliminated in 2007. 2011 (HJR 109) SLB given direct • Constitutional amendment allowed SLB the option to distribute directly to ASF, up to distribution authority $300 million per year. to ASF • Broadened PSF base to which SBOE total return rate is applied by including SLB real assets and cash. 2019 (SB 608) SLB governance • Expanded SLB from 3 to 5 members, with selection of 2 new members by Governor and PSF based on input from SBOE. coordination • Requires annual joint meeting between SLB and SBOE to coordinate asset allocation. 2019 (HB 4388) PSF governance • Establishes a PSF Liquid Account to invest SLB cash. • Requires quarterly reporting and a study analyzing ASF distributions, due June 1, 2020. 2019 (HJR 151) Direct distribution to Increases allowable distribution from SLB or SBOE from $300 million to $600 million per ASF authority year. increased FEBRUARY 19, 2020 LEGISLATIVE BUDGET BOARD ID: 6414 6
Permanent School Fund Assets and ASF Distribution 2007-2021 $50,000.0 $46.5 billion $45,000.0 $40,000.0 In FY2020, $4.045 $35,000.0 billion has been moved from SLB cash to the $29.3 billion $30,000.0 PSF liquid account. $25,000.0 $20,000.0 $15,000.0 $10,000.0 $5,000.0 $0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 PSF (SBOE) PSF (SLB) ASF Distribution $1,706 million $1,800.0 $1,600.0 $1,400.0 $1,200.0 $843 million $1,000.0 $800.0 $600.0 $400.0 $200.0 $0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 ASF Disribution (SBOE) ASF Distribution (SLB) FEBRUARY 19, 2020 LEGISLATIVE BUDGET BOARD ID: 6414 7
RESFA Discretionary Real Assets and Cash, and Distributions from SLB PSF Holdings, 2007-2021) $9,000.0 Total Assets: $8.6 billion $8,000.0 $7,000.0 $6,000.0 $5,000.0 $4,000.0 In FY2020, $4.045 $3,000.0 Total Assets: $1.5 billion billion has been moved $2,000.0 from SLB cash to the PSF liquid account. $1,000.0 $0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 RESFA Cash RESFA Discretionary Real Assets To PSF Corpus Direct to ASF 2020-21 GAA assumes a total of $600m/year $700.0 $600 million from SLB ($300m/year currently approved) $600.0 $500.0 $400.0 $300.0 $131 million $200.0 $100.0 $0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 To PSF Corpus Direct to ASF FEBRUARY 19, 2020 LEGISLATIVE BUDGET BOARD ID: 6414 8
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