(a) [Reserved for future use.]
(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% 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 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 investments;
(3) Bonds or other obligations that are payable from revenue or earnings specifically pledged therefor of a public utility that 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; and (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 bear a rating of “B” 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 known security concerns. Not more than two 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 bear a rating of “BBB” or better by any two nationally known security rating concerns. Not more than two percent of total investments shall consist of any one issue of these bonds.
(7) Bonds or 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 of any one of such communities shall be limited of 2 percent of the total investment account of the System.
(8) Common and preferred stocks of any corporation charted 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 one 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 investment of the System on the date the investment is made. Investment in foreign stocks shall be limited to 25 percent of the market value of the total investment of the System.
(9) All securities purchased by the Board shall be registered in the name of the system, and no securities shall be purchased or sold or in any manner hypothecated except by the action of the Board duly entered into the record of its proceeding. However, notwithstanding any other provision of law, the Board 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.
(A) 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 shall be acquired by the Board at prices representing the prevailing market value for such securities.
(B) 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.
(C) All interest and dividends derived from investments, and any gains from the sale or exchange or investments, shall be credited by the treasurer to the account of the System.
(c) Personal loans to active members of the System. Provided that a member shall not have more than one loan in a fiscal year, any member of the System who has contributed to the System for at least two years has the privilege of borrowing from the retirement System. The amount that any member may borrow may not exceed 75% of the member's contribution credits in the System and shall not, in any event, exceed the sum of $75,000, with each individual loan not to exceed $10,000 at 8% interest rate. In case of separation from service for any reason, including death or disability of the member, the balance due on the loan and any accrued interest thereon, shall be deducted from any accumulated contributions. This rate includes a charge for insurance on loans against death or total and permanent disability, which development shall effect a cancellation of any unpaid delinquent balance of a loan and any accrued interest thereon. The principal amount and interest thereon, must be repaid to the system in installments at least equal to 5% of the member's salary and at a rate that will effect repayment of the loan before the member attains age 70. The repayments must be deducted from the salary of the member when the member's contributions to the System are deducted. Personal loans issued under this section are not subject to subsection (b), paragraph (17) and shall not exceed the aggregate amount of $10,000,000 per fiscal year, per district for a maximum allocation of $20,000,000.
(1) Mortgage loans to members for construction or purchase of a home, or improvements to a home. Subject to the rules and regulations that the Board may prescribe, any member of the system who has contributed for a[t] least five years has the privilege of borrowing from the retirement system for the initial construction phases 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 residing in St. Croix and members residing in St. Thomas and St. John. A member, who already owns a home, whether rented or owner-occupied, is 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 shall require as a condition to making 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.
(A) The percentage of reserves in excess of cash requirement, which shall be available for loans, will be determined by actuarial valuations.
(B) The total amount of loan outstanding to any member shall be determined by the Board of Trustees and shall not exceed $350,000.
(C) Notwithstanding the age of the member, the loan authorized under this subsection may extend for a thirty year period or age 70;
(D) For loans given for home construction, during the construction and until a mortgage is executed, a bond or Builder's Risk Insurance must be obtained naming the system as beneficiary. As member's salary become[s] due and payable, it shall be deemed collateral security for the loan until the principal, together with any interest thereon, is paid in full.
(E) Every loan under this subdivision must 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, purchased or improved pursuant to the provisions of this subdivision, until the principal amount of the loan and any interest thereon, are paid in full. The Board may 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 the institution by the member-grantee or for the purpose of refinancing an existing first priority mortgage. If the Board 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 the 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 that may accumulate in the System in his favor; except, that in the case where two persons may hold a mortgage loan jointly, and the loan is not insured by a death or permanent disability policy as provided by subparagraph (d), and one has or becomes 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.
(G) The principal of the loan and interest thereon shall be repaid to the System in installments at least equal to 10% of the member's annual salary, and at a rate that will effect a repayment of the loan prior to the member's attaining the age of seventy 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 the loan must 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) The Board shall establish a special fund or account to restore to the System any losses suffered by it as a result of defaults on any loans or of any other cause incidental to the administration or operation of the loan program under this section.
(J) 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 the property. Amounts necessary to meet successful bids must be paid from accounts or reserves established by the Board of Trustees or from the Retirement System Mortgage Loan Fund as cited at title 33 Virgin Islands Code, section 3026.
(K) No member who has obtained a loan under subsection (b), the amount of which is less than the limit provided in subsection (d) hereof, may be prohibited because of the 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 subsection (b) of this section.
(L) Nothing in this subsection shall prohibit two or more members from obtaining loans as individual members 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.
(M) If that a member fails to provide evidence of property insurance coverage of the System's collateral interest in the mortgaged property, the System, upon thirty days' written 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.
(N) The System shall recover the cost of the forced-placed insurance premium in the following manner: (i) the member may pay the cost of the premium in full within ten days of the notice of the System's payment of the forced-placed insurance premium; or (ii) 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.
(2) Chattel mortgages to members or retirees of the System shall be given, subject to the rules and regulations as the Board may prescribe, and consistent with the following conditions:
(A) Chattel mortgages shall be made for the purchase of new automobiles, new passenger carrying trucks, vans, and new motorcycles or other new passenger-carrying type vehicle.
(B) Interest on the loans must 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.
(D) The chattel mortgage must be recorded with the Recorder's Office and the Virgin Islands Police Department (VIPD) of the respective district and shall be noted on the certificate of title of the vehicle when purchased.
(E) The chattel mortgage must 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 System may 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) The Board shall promulgate concerning the granting of a chattel mortgage for the purchase of a new automobile. The regulations must include, but not be limited to, down payment requirements for the 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 Board of Trustees, upon thirty days' notice to the member, shall place the member into the forced-placed automobile insurance protection program to protect the system chattel mortgage interest in the automobile.
(I) The system shall recover the cost of the forced-placed automobile insurance premium in the following manner: (a) the member may pay the cost of the forced-placed automobile insurance premium in full within ten days of notice of payment by the Board of the forced-plan automobile insurance premium; or (b) 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.
(3) Personal loans to members who have retired are entitled to annuities, if the loans do not exceed $50,000. Retired members may refinance an existing personal loan once per fiscal year in accordance with the regulations established by the Board. The Board shall prescribe rules and regulations for the issuance of the loans which insure a reasonable repayment schedule, at least three collateral options, and a rate of interest not less favorable to the recipient than the rate charged for personal loans to members who are not retired. No member who has retired may be denied a personal loan because of the member’s age, race, sex, color, creed, national origin, disability, or political affiliation. This payment must include a charge for insurance on loans against death, which developments effect a cancellation of any unpaid balance of a loan and accrued interest thereon. The loan authorized under this paragraph is payable within a 10-year period.
(4) Subject to such rules and regulations as the Board may prescribe; provided that the rules and regulations do not prevent the member from obtaining a loan for the construction of a house pursuant to the provisions of paragraph (11), loans to members of the system solely for the purchase of land must be consistent with the following:
(A) Loans given for the purchase of land may be secured by a first priority mortgage. For the purpose of a securing a construction loan, the Board may consent to subordinate its interest in the first priority mortgage to a private lending institution.
(B) No land loan may exceed $50,000.
(C) Notwithstanding the age of the member, the loan authorized under this subsection may extend for a fifteen year period.
(D) Any loan made pursuant to the provisions of this paragraph must be limited to the purchase of land on which the borrower intends to construct his principal place of residence.
(E) The provisions of paragraph (11) of this section pertaining to loan administration, the Retirement System Mortgage Loan Fund, interest rate, and repayment are applicable to loans made pursuant to this subsection to the extent they are consistent with this chapter.
(5) Real property purchased and/or developed by the Board for sale for homeownership purposes, provided, that members of the system shall have preference in the purchase of any such real property from the Board.
(6) Bonds or other indebtedness issued by foreign governments or foreign corporations provided that (a) these securities bear a “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 have invested in foreign bonds shall be limited to 3 percent of the market value of the total investments of the system.
(7) 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.
(8) 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 prescribed in subsection (c).
(9) Alternative Investments. The Board of Trustees may administer the investment portfolio programs of the system including the Alternative Investment Programs.
(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 which 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 which 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 shall include investments in real estate trust.