840 CMR 19: Exemptions From Investment Restrictions

Summary

840 CMR 19.00 establishes the process by which retirement boards may obtain exemptions from the investment restrictions of M.G.L. c. 32, § 23(2)(b), allowing boards to invest in a broader range of assets through qualified investment managers. Boards that received exemptions before the effective date of 840 CMR 19.00 retain them for those asset classes. For new exemptions, boards must follow a competitive selection process with specified criteria for choosing investment managers across equity, fixed income, cash, real estate, and other asset classes. PERAC may revoke an exemption if a board fails to maintain required standards, and boards that lose their exemptions revert to the legal list investment restrictions of M.G.L. c. 32, § 23.

Full Text

840 CMR 19.00 is promulgated by the Public Employee Retirement Administration Commission pursuant to M.G.L. c. 7, § 50 and M.G.L. c. 32, §§ 21 and 23.

19.01 Effect of Existing Exemptions

(1) Any board which has received an exemption from restrictions on investments of M.G.L. c. 32, § 23(2)(b)(i) through (vii) on or before the effective date of 840 CMR 19.00 shall be deemed to have applied for and received an exemption for investment in the asset class which was the subject of the prior exemption. In the event any such board, following the completion of a competitive process as required by these regulations, selects a qualified investment manager appearing on a list of qualified investment managers promulgated by the Public Employee Retirement Administration Commission the board may retain said qualified investment manager without receiving a further exemption, provided, however, that the board has complied with other provisions of 840 CMR.
(2) Boards shall use the following process in selecting qualified investment managers to invest in equity, fixed income, cash or cash equivalents. Boards shall establish specifications and criteria for selection including:
(a) the total size of the portfolio to be managed by each prospective manager;
(b) the number of managers that will be used for the total portfolio;
(c) an initial determination as to whether existing managers will be retained automatically or reviewed as part of the overall selection process;
(d) the type(s) of manager to be selected;
(e) the size of the management firm desired;
(f) the style or investment philosophy of the manager desired;
(g) the methodology or investment process desired;
(h) the range of fees that are considered tolerable;
(i) the investment manager's use of soft dollar services; and
(j) the manager's experience in policy restrictions including South Africa, Northern Ireland and tobacco restrictions.
(3) Boards shall use the following process in selecting qualified investment managers to invest in real estate. Boards shall establish specifications and criteria for selection including:
(a) the total size of the portfolio to be managed by each prospective manager;
(b) the type of real estate investment made by each qualified investment manager (unleveraged, leveraged, participating mortgage, straight-rate loans, or insured loans);
(c) the construction stage of the properties (tenanted, rent-up phase, under construction or to be built);
(d) the types of property to be selected (retail, office, residential or industrial).

19.02 Complete Exemption by Commission

Upon receipt of a complete application for an exemption, the Commission shall review the application and shall grant or deny the exemption, or grant a conditional exemption.

19.03 Revocation of Exemption

The Commission may revoke any exemption previously granted if the board fails to comply with the requirements of 840 CMR 19.00 or if the Commission determines that the board is not being managed in accordance with applicable law and regulations.

REGULATORY AUTHORITY: 840 CMR 19.00: M.G.L. c. 7, § 50; c. 32, §§ 21 and 23.