The Kansas House of Representatives and Senate have passed bills that would allow the $24.8 billion Kansas Public Employees Retirement System, Topeka, to invest more than the current cap of 15% of assets in alternative investments.
Both bills, SB23 and HB2103, allow the pension fund's board of trustees to set the alternative investments limit.
SB23 passed the Senate 21-13 on Feb. 22 with amendments after HB2103 passed the House 113-3 on Feb. 1. The bills have now been referred by the House to the Senate Committee on Financial Institutions and Insurance to go over amendments. Committee hearings have yet to be scheduled, said Emily Wilson, KPERS spokesperson.
In a Feb. 1 memo to the Senate, KPERS Executive Director Alan Conroy and CIO Bruce Fink recommended lifting the cap of 15% because investment volatility recently lifted the actual allocation to alternatives as high as 14.1% before settling to its current level of 13%.
By statute, KPERS would have to stop new investments in alternatives if the pension fund were to reach that 15% threshold and could not resume until that exposure fell.
"This would restrict KPERS' ability to diversify these investments across economic cycles, increasing risk, and may result in KPERS losing access to top tier investment managers, potentially reducing return," they wrote in the memo.
By giving the KPERS board the authority to determine the cap on alternative investments, the bills would end decades of increases to the caps, which have remained under statutory authority. The Legislature originally approved a cap of 10% in 1992, which was revised to 5% the following year, then changed to a cap of 1% for annual commitments to alternative investments in 2004, and then changed to a cap of 5% for annual commitments and an overall cap of 15% in 2012.
"Adding this to the list of delegated authorities of the Board of Trustees will allow the System to be more responsive to market conditions while executing the Board's alternative investment strategy," Conroy and Fink wrote in the memo.
