(a) [Repealed.]
(b) The Board is vested with the discretionary investment strategy authority to vary the investment criteria set out in this section by no greater than 25% of the aggregate amounts specified. The Board is prohibited from changing the securities ratings specified in this section; however, the Board may invest a maximum of 15 percent of the portfolio in below-investment grade securities. The Board, after determining it is in the best interest of the System, may hold securities that have been downgraded to below investment grade, and those securities do not apply towards the 15% below investment grade allocation. The Board of Trustees shall make investment decisions in accordance with the “prudent investor standard.” The reserves of the system in excess of the cash requirements for current operations shall be invested and reinvested in a diversified portfolio of assets so as to meet the objectives and goals set forth by the Board of Trustees in the System’s Investment Policy Statement. The following types of securities and investments, including certain limitations, must comprise at least 80 percent of the System’s assets.
(1) Bonds and notes of the United States Government and its agencies and instrumentalities, the obligations of which, both as to principal and interest, are guaranteed unconditionally by the United States Government;
(2) Bonds or notes which are general obligations of any State in the United States, or of any political subdivision thereof; Provided, such political subdivision had a population as shown by the last Federal Census preceding such investment of not less than 30,000 inhabitants; And provided further, That such State or political subdivision thereof has not defaulted for a period longer than 30 days in the payment of interest or principal on any of such general obligations during the period of 10 years next preceding such investment;
(3) Bonds or other obligations which are payable from revenue or earnings specifically pledged therefor of a public utility which is municipally owned either directly or indirectly through any civil division, authority or public instrumentality of the municipality, provided: (a) the municipality has at least 30,000 inhabitants; (b) the utility has been in operation for at least 10 years prior to the date of investment; (c) bonds or other obligations of such utility have not been in default for any period longer than 30 days; (d) the rates for service are fixed and maintained and collected at all times so as to produce sufficient revenue or earnings to pay all operating and maintenance charges and both the principal and interest on such bonds or obligations; (e) the investment in any one issue of such bonds does not exceed 15 percent of such issue, and that the total investment in this type of security shall not at any time exceed 10 percent of the total investment of the system;
(4) Bond or any other evidences of indebtedness issued or guaranteed by any corporation, chartered under the laws of the United States, provided that these securities and investments bear a rating of “BBB” or better by any two nationally known security concerns. Not more than 5 percent of total investments shall consist of any one issue of these bonds.
(5) Bank loans and convertible securities that bear a rating of “B” or better by any two nationally known security rating concerns. Not more than 2 percent of total investments shall consist of any one issue of these bonds.
(6) Bonds or other evidences of indebtedness of any domestic industrial corporation, provided that these securities and investments bear a rating of “BBB” or better by any two nationally known security rating concerns. Not more than 2 percent of total investments shall consist of any one issue of these bonds.
(7) Bonds or other obligations of the Commonwealth of Puerto Rico or of the Territories of the United States, provided that the investment in any one issue of bonds of these communities shall not exceed 10 percent thereof, and that the total investment in all securities and investments of any one of such communities shall be limited to 2 percent of the total investment account of the system.
(8) Common and preferred stocks of any corporation chartered under the laws of the United States, or of any state, district or territory thereof, if listed on a national securities exchange as defined in the Federal Securities Exchange Act, and are legal for trust funds in the Virgin Islands; or common and preferred stocks of any foreign corporation if listed on any internationally recognized security exchange. The investment in the stock of any single corporation should not exceed 1 percent of the market value of the total investment of the fund on the date of purchase or be greater than 1 percent of the total outstanding stock of the corporation. The aggregate amount to be invested in common and preferred stocks shall be limited to 70 percent of the market value of the total investments of the system. Investment in foreign stocks shall be limited to 25 percent of the market value of the total investment of the system.
The aggregate amount to be invested in common and preferred stocks shall be limited to 20 percent of the book value of the total investments of the system on the date the investment is made and the investment in any such stocks or a sale thereof shall be approved by at least two-thirds of the membership of the board.(9)
(A) Viatical senior and/or life settlement policy contract investments provided:
(i) When the investment is in a group of life insurance policies, that the minimum number of measured lives is 100;
(ii) All policies purchased as investments must be issued by insurers licensed to do business in at least on[e] of the United States or its territories;
(iii) The face value of any single policy investment by the system shall not exceed the greater of $5,000,000 or 2% of the aggregate face value of policy investments by the system;
(iv) The aggregate face value of policy investments by the system on any individual life shall not exceed the greater of 10,000,000 or 1% of the aggregate face value of policies purchased as investments by the system; and
(v) Policy investments may include policies on the life of members of the system.
(B) The total purchase price of investments of the system in viaticum life and senior settlement policy contracts shall not exceed 20% of the total investments of the system.
(10) All securities and investments purchased by the said Board shall be registered in the name of the system, and no securities or investments shall be purchased or sold or in any manner hypothecated except by the action of said Board duly entered in the record of its proceedings. However, notwithstanding any other provision of law, the Board of Trustees may establish a domestic trust that will meet applicable U.S. Internal Revenue Code provisions, for the purpose of receiving, holding, paying, and transferring assets of the system on the continental U.S. mainland.
Subject to the limitations prescribed in this section, the Board shall have full power to hold, purchase, sell, assign, transfer and dispose of any of the securities and investments that it shall have acquired, as well as the proceeds thereof. All securities and investments shall be acquired by the Board at prices representing the prevailing market value for such securities and investments. Except as otherwise provided herein, no trustee and no employee of the Board shall have any direct interest in the income, gains or profits of any investments made by the Board, nor shall any such person receive any pay or emolument for service in connection with any investment made by the Board. No trustee or employee of the Board shall become an endorser or surety or in any manner an obligor for money loaned or borrowed from the system. All interest and dividends derived from investments, and any gains from the sale or exchange of investments, shall be credited by the treasurer to the account of the system.(11) Mortgage loans to members or retirees of the system for construction of a home, for purchase of a home, or for capital improvements of a home. Subject to such rules and regulations that the board may prescribe, any member of the system who has contributed for at least five years shall have the privilege of borrowing from the retirement system for the construction of a home (including the construction of cisterns and foundation slabs), for the purchase of a home, or for capital improvements of a home owned by the borrowing member which improvements increase the value of the property. The board shall, to the extent possible, apportion the loans equally between members or retirees residing in St. Croix and members or retirees residing in St. Thomas and St. John. A member or retiree who already owns a home, whether rented or owner-occupied, shall be eligible for a mortgage loan (i) for capital improvements to that home; (ii) for refinancing and amortizing an existing first priority mortgage on that home; and (iii) for purchase of a second residential property. The Board may require as a condition to making a mortgage loan that the mortgagor insure the system's interest as mortgagee of the property with insurance coverage similar to that coverage which is normally required for a mortgage loan by a bank, insurance company or other mortgage lender, including but not limited to title, casualty, and life insurance. The System shall provide to the mortgagor an annual mortgage statement indicating the balance owed, and the principal and interest paid on the loan.
(A) Thirty (30) percent of the reserves in excess of the cash requirements for current operations shall be available for investment in loans provided for in this subdivision.
(B) The total amount of loan outstanding to any member shall not exceed three hundred fifty thousand ($350,000) dollars.
(C) The loan authorized under this subsection, may not extend beyond a thirty (30) year period or until the member reaches the age 70.
(D) During construction until a mortgage is executed a bond shall be given to the system as security. In addition, the salary of the member shall be deemed collateral security as it becomes due and payable until the principal amount of the loan, together with any interest thereon, are paid in full to the system pursuant to the provisions of paragraph (g) of this subdivision.
(E) Every loan under this subdivision shall be secured by a first or second priority mortgage upon the land and upon each building or other structure thereon which is to be constructed, to be purchased, or to be improved under the provisions of this subdivision, until the principal amount of the loan, together with any interest thereon, are paid in full to the system pursuant to the provisions of paragraph (g) of this subdivision. The System is authorized to consent to the mortgaging of real property, previously mortgaged pursuant to the provisions of this paragraph to a private lending institution, for the purpose of securing an additional construction or improvement loan from such institution by the member-grantee or for the purpose of refinancing an existing first priority mortgage. If the System shall determine that the total value of the land and any improvements thereon is sufficient to protect the interest of the system as holder of a second priority mortgage, then such consent agreement may include subordination of the rights of the system in the mortgage under this paragraph for all purposes, including foreclosure proceedings by the mortgagee.
(F) Every member, securing a mortgage loan under the provisions of this subdivision shall assign to the system as further security, until the loan and interest thereon are paid in full, all of his accumulated contributions as well as any other contributions which may accumulate in the system in his favor; provided, however, that in the case where two persons may hold a mortgage loan jointly, which loan is not insured by a death or permanent disability policy as provided by subparagraph (H), and one shall have died or become permanently disabled, the other may elect to have a portion of the benefits assigned by the deceased or disabled applied each month to the mortgage loan in lieu of a monthly mortgage payment by the surviving or non-disabled party until the entire amount of the assignment is depleted. It is further provided, that in order to assist a member in obtaining a loan pursuant to this paragraph, the following may be permitted:
(1) A member may, in lieu of a cash down payment, assign to the system his equity in any real property, improved or unimproved, as follows:
(A) Upon the assignment of the equity, as provided in this paragraph, the member shall be eligible for a mortgage loan, if his income is sufficient to meet the loan payments as prescribed in this section; or
(B) If the equity assigned, as provided in this paragraph, by the member is less than the amount that is needed for the down payment, the member may, in order to qualify for a loan under this paragraph, present in cash the difference between the value of the assigned equity and the required down payment.
(2) To establish eligibility for a loan under this paragraph and ability to repay the loan, a member may, present a financial statement projections of rental income to be received from the home that he intends to build or purchase with the loan.
(G) The principal of the loan together with interest thereon shall be repaid to the system in installments at least equal to 10 percent of the member's annual salary, and at a rate that will effect a repayment of the loan within a period of thirty (30) years. Such repayments shall be deducted from the salary of the member at the same time and in the same manner as the member's contributions to the system are deducted.
(H) Interest on such loan shall carry interest rates which shall be set in advance from time to time by the Board. In addition to interest, the Board may charge for insurance on each loan against the eventuality of the death or the total and permanent disability of the member-grantee, which eventually shall result in a cancellation of any unpaid principal of the loan and any accrued interest thereon.
(I) Deleted.
(J) Deleted.
(K) The Board may, to the extent necessary to protect the interests of the system, bid for the purchase of any property on which it holds a second mortgage, provided that the bid does not exceed the combined value of the first and second mortgages on said property.
(L) No member who has obtained a loan under this subdivision (12), the amount of which is less than the limit provided in subparagraph (B) hereof, shall be prohibited because of such loan from obtaining an additional loan for an amount which, when added to the amounts outstanding on any other loan or loans under this subdivision, would not exceed the limit provided in subparagraph (B) hereof.
(M) Nothing in this subdivision shall prohibit two or more members or retirees from obtaining loans as individual members or retirees on the same property, provided that the value of the property exceeds the combined loans and the income and credit of each applicant justifies the amount of the loan to that applicant.
(N) If a member fails to provide evidence of property insurance coverage to the system for the collateral interest in the mortgaged property, the System, upon thirty day's notice to the member, shall place the member's mortgage into the forced-placed protection program to protect the system's mortgage interest in the mortgaged property. The system shall recover the cost of the forced-placed insurance premium in the following manner: (1) the member may pay the cost of the premium in full within ten days of notification that the mortgage has been placed in the forced-placed protection program; or (2) the cost of the forced-placed premium shall be added to the unpaid mortgage principal at an amortized interest rate that is consistent with the mortgage interest rate applicable for that particular mortgage category on the date that the premium is added to the principal.
(12) Chattel mortgages to members or retirees of the system, subject to such rules and regulations as the Board may prescribe, consistent with the following provisions:
(A) Chattel mortgages shall be made for the purchase of new automobiles, new passenger-carrying trucks and vans, new motorcycles or other new passenger-carrying type vehicle.
(B) Interest on such loans shall be set in advance, from time to time, by the Board and shall be repayable in no more than five years.
(C) The total amount of a chattel mortgage on the purchase of a new automobile may not exceed $40,000 dollars.
(D) The chattel mortgage shall be recorded with the Recorder's Office and the U.S. Virgin Islands Police Department (V.I.P.D.) of the respective district and shall be noted on the certificate of title of the vehicle when purchased.
(E) The chattel mortgage shall be secured by the new automobile for which the loan is being obtained and the member shall insure the automobile for which the loan is made with comprehensive coverage for no less than the value of the system's loan on the vehicle and the insurance policy shall make the system as beneficiary to the extent of its lien.
(F) The Board shall not determine that members or retirees who are otherwise qualified to obtain a loan under this paragraph (12) are ineligible for a loan for the sole reason that the vehicle will be used, in whole or in part, as a taxicab.
(G) Regulations shall be promulgated concerning the granting of a chattel mortgage for the purchase of a new automobile and shall include, but not be limited to, down payment requirements for such loans.
(H) If a member fails to provide evidence of comprehensive automobile insurance coverage to the system for the collateral interest in the chattel mortgage, the System upon thirty days' notice to the member, shall place the member's chattel mortgage into the forced-placed automobile insurance protection program to protect the system's chattel mortgage interest in the automobile. The system may recover the cost of the forced-placed automobile insurance premium in the following manner: (i) the member may pay the cost of the forced-placed automobile insurance premium in full within ten days of notification that the chattel mortgage has been placed in the force[d]-placed protection program; or (ii) the cost of the forced-placed automobile insurance premium shall be added to the unpaid chattel mortgage principal at an amortized interest rate that is consistent with the chattel mortgage interest rate applicable to automobile loans on the date that the premium is added to the principal.
(13) Loans to members or retirees of the system solely for the purchase of land, subject to such rules and regulations as the Board may prescribe, consistent with the following provisions:
(A) Secured by a first priority mortgage, provided that such a requirement shall not prevent the obtaining of a loan for the construction of a house on the property pursuant to the provisions of subdivision (11) of this section. The System may consent to subordinate its interest in the first priority mortgage to a private lending institution, for the purpose of securing a construction loan for the property.
(B) No loan may exceed fifty thousand dollars ($50,000).
(C) Notwithstanding the age of the member, the loan authorized under this subsection may extend for a fifteen (15) year period.
(D) Any loan made pursuant to the provisions of this subdivision shall be limited to the purchase of land on which the borrower intends to construct his principal place of residence.
(E) The provisions of subdivision (11) of this section pertaining to loan administration, the Retirement System Mortgage Loan Fund, interest rate, and repayment shall be applicable to a loan made pursuant to this subdivision to the extent they are consistent with this subdivision.
(F) The System shall provide to the mortgagor an annual mortgage statement indicating the balance owed, and the principal and interest paid on the loan.
(14) Real property purchased and/or developed by the System for sale for homeownership purposes, provided, that members of the System shall have preference in the purchase of any such real property from the System.
(15) Bonds or other indebtedness issued by foreign governments or foreign corporations provided that (a) these securities bear a rating of “B” or better by any two internationally known securities rating concerns, and (b) not more than 5 percent of total investments shall consist of any one issue of these bonds excluding Germany, Canada and Australia. The aggregate amount to be invested in foreign bonds shall be limited to 3 percent of the market value of the total investments of the system.
(16) If the Board determines that compliance with this section will result in lower anticipated overall earnings for the System than would be obtainable from alternative investment opportunities that would lead to superior total portfolio performance, the Board may substitute those alternative investments, to the extent actually available for acquisition, for the investments otherwise specified by this section. Additionally, if adherence to the diversification guidelines specified in this section would conflict with the Board's fiduciary obligations, or would conflict with the Prudent Investor Standard, the Board may substitute may deviate from the guidelines provided in this section. All investment decisions made pursuant to this section shall be made in accordance with the prudent investor standard.
(17) The Board of Trustees may establish the loan lending limits for all categories of loans to members; except that the loan lending limits for personal loans are as prescribed in subsection (c).
(18) Alternative Investments. The Board of Trustees may administer the investment portfolio programs of the system including the Alternative Investment Programs. The maximum amount which may be invested in the Alternative Investment Program is no more than 10% of the total amount of the available investment portfolio.
(A) General; definitions. Alternative Investments are investment opportunities that have not been identified by the traditional public equity or fixed income capital markets. The alternative asset class offers the potential for significantly greater returns than those available in the public markets. The returns are commensurate with risk presented by the class, the as [sic] liquidity, lack of standard historical evaluation data, use of derivative securities and leverage.
Examples of the type of investments considered as alternative or non-traditional investments are:(i) Private Equity
Venture Capital Mezzanine Acquisition/Buyouts Restructuring Subordinated Debt Special Situations(ii) Natural Resources
Oil and Gas Agriculture(iii) Managed Futures/Commodities
Active Indexed Long-Only and Long/Short(iv) Hedge Funds and Portfolio Overlay
Macro Long/Short Event-Driven Market Neutral(v) Real Estate
(vi) Financial Futures
(vii) Swaps, to include, interest Rate Swaps and Credit Default Swaps
(viii) Financial Options and swap options
(ix) Non USD currency exposure
(x) Currency forwards
The instruments identified in vi-x do not apply to the fixed income portfolio 10% maximum.(B) Types of Alternative Investments - definitions.
(i) “Early-stage” means companies that do not have material and sustainable revenues from operations. Early-stage companies frequently have not achieved profitability.
(ii) “Intermediate-stage” means companies that have achieved success in generating meaningful levels of revenues and are in a revenue/market growth phase with the expectation of achieving profitability. However, due to the heavy capital requirements needed to support growth, these companies may experience negative cash flows.
(iii) “Late-stage” means companies in development when the rate of growth is slowing but the business is established. Late-stage companies are expected to demonstrate profitability and positive cash flow. These companies often have a dominant position in their primary markets.
(iv) “Mezzanine Funds” means funds that include investments in subordinated debt or equity of public owned companies. They combine features typically associated with debt instruments, including current income and covenant protections, with the opportunity to enhance returns through warrants, conversion rights or options.
(v) “Buyouts/Acquisitions” means partnerships that provide funding to acquire majority or controlling interests in a business or product lines from either a public or private company.
(vi) “Restructuring/Recovery” means investments made in distressed or poorly performing companies, with the intent of initiating a recovery via financial restructuring or the introduction of management expertise. Partnership investments may include debt or equity securities.
(vii) “International” means funds that make the majority of their investments by strategy and policy outside of the United States.
(viii) “Managed Futures” means the management of contracts involving the obligations to purchase, or deliver, a specified commodity or financial instrument at a specified price at some specific future period.
(ix) “Hedge Funds” means partnerships that use investment and risk management skills to seek positive returns regardless of market direction.
(x) “Market Neutral Strategies” means investments wherein both long and short positions are taken by the manager, and as long as the long position outperforms the short position, market returns have no bearing on the outcome.
(xi) “Subordinated Debt” means a debt obligation that has unsecured junior claims to interest and principal subordinated to ordinary debentures or other debt obligations of the issuing corporation.
(xii) “Special Situations” means unusual investment opportunities due to some special development, i.e. a merger, oil discovery, new product development, etc., that is expected to most favorably affect the earnings outlook for the public's psychology with respect to the prospects for a particular company.
(xiii) “Venture Capital” means capital that is subject to more than a normal degree of risk, usually associated with a new business or venture, made either directly or indirectly in a commingled fund.
(xiv) “Real Estate” means real estate wherever situated and includes investments in real estate trust but does not include any real estate acquired by the system prior to December 31, 2005.
(c) The System shall make personal loans to members of the System, as provided in this subsection. Subject to such regulations that the Board may prescribe, any member of the System who has contributed for at least two years shall have the privilege of borrowing from the retirement System, but a member may not have more than one loan in a fiscal year.