State Board of Investment required to develop goals and investment manager policy, waivers and seed-stage commitments authorized, and reports required.

A bill for an act

relating to state government; requiring the State Board of Investment to develop

goals and investment manager policy; authorizing certain waivers and seed-stage

commitments; requiring reports; amending Minnesota Statutes 2024, section

11A.24, by adding a subdivision; Minnesota Statutes 2025 Supplement, section

11A.04; proposing coding for new law in Minnesota Statutes, chapter 11A.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2025 Supplement, section 11A.04, is amended to read:

11A.04 DUTIES AND POWERS; APPROPRIATION.

The state board shall:

(1) Act as trustees for each fund for which it invests or manages money in accordance

with the standard of care set forth in section
11A.09
if state assets are involved and in

accordance with chapter 356A if pension assets are involved.

(2) Formulate policies and procedures deemed necessary and appropriate to carry out

its functions. Procedures adopted by the board must allow fund beneficiaries and members

of the public to become informed of proposed board actions. Procedures and policies of the

board are not subject to the Administrative Procedure Act.

(3) Employ an executive director as provided in section
11A.07
.

(4) Employ investment advisors and consultants as it deems necessary.

(5) Prescribe policies concerning personal investments of all employees of the board to

prevent conflicts of interest.

(6) Maintain a record of its proceedings.

(7) As it deems necessary, establish advisory committees subject to section
15.059
to

assist the board in carrying out its duties.

(8) Not permit state funds to be used for the underwriting or direct purchase of municipal

securities from the issuer or the issuer's agent.

(9) Direct the commissioner of management and budget to sell property other than money

that has escheated to the state when the board determines that sale of the property is in the

best interest of the state. Escheated property must be sold to the highest bidder in the manner

and upon terms and conditions prescribed by the board.

(10) Undertake any other activities necessary to implement the duties and powers set

forth in this section.

(11) Establish a formula or formulas to measure management performance and return

on investment. Public pension funds in the state shall utilize the formula or formulas

developed by the state board.

(12) Except as otherwise provided in article XI, section 8, of the Constitution of the state

of Minnesota, employ, at its discretion, qualified private firms to invest and manage the

assets of funds over which the state board has investment management responsibility. There

is annually appropriated to the state board, from the assets of the funds for which the state

board utilizes a private investment manager, sums sufficient to pay the costs of employing

private firms. Each year, by January 15, the board shall report to the governor and legislature

on the cost and the investment performance of each investment manager employed by the

board.

(13) Adopt an investment policy statement that includes investment objectives, asset

allocation, and the investment management structure for the retirement fund assets under

its control. The statement may be revised at the discretion of the state board. The state board

shall seek the advice of the council regarding its investment policy statement. Adoption of

the statement is not subject to chapter 14.

(14) Adopt a compensation plan setting the terms and conditions of employment for

unclassified employees of the state board pursuant to section
43A.18, subdivision 3b
.

(15) Contract, as necessary, with the board of trustees of the Minnesota State Colleges

and Universities System for the provision of investment review and selection services under

section
354B.25, subdivision 3
, and arrange for the receipt of payment for those services.

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(16) Adopt an emerging, diverse, start-up, and franchise investment manager policy as

provided under section 11A.238, subdivision 2. The statement may be revised at the discretion

of the state board. Adoption or revision of the statement is not subject to chapter 14.

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There is annually appropriated to the state board, from the assets of the funds for which

the state board provides investment services, sums sufficient to pay the costs of all necessary

expenses for the administration of the board. These sums will be deposited in the State

Board of Investment operating account, which must be established by the commissioner of

management and budget.

Sec. 2.

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[11A.238] EMERGING, DIVERSE, START-UP, AND FRANCHISE

INVESTMENT MANAGERS.

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Subdivision 1.

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Definitions.

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(a) For purposes of this section, the following terms have

the meanings given.

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(b) "Diverse investment manager" means an emerging investment manager

majority-owned by one or more individuals who are women, racial minorities, or persons

with a substantial disability as defined in Minnesota Rules, part 1230.0150, subpart 24.

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(c) "Emerging investment manager" means an investment adviser or private fund manager

that:

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(1) is registered with, or exempt from registration under, the United States Investment

Advisers Act of 1940, including managers of funds offered pursuant to the United States

Securities and Exchange Commission's Regulation A conditional small issues exemption

under Code of Federal Regulations, title 17, section 230.251, or Regulation D exemption

for limited offers and sales under Code of Federal Regulations, title 17, section 230.506,

paragraph (b) or (c);

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(2) manages less than $1,000,000,000 in assets within a particular asset class as

determined by the state board; and

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(3) demonstrates professional experience and governance practices consistent with

section 11A.09.

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(d) "Franchise equity" or "franchising investment" means an equity or equity-like

investment under section 11A.25 in a franchise business model, including a multiunit or

brand-replication system, structured through limited partnerships, private equity, or similar

vehicles.

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(e) "Manager of managers" means a qualified investment adviser retained to allocate

capital among multiple emerging investment managers, diverse investment managers,

start-up funds, or managers of franchise investments.

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(f) "Start-up fund" means a newly formed investment fund or first-time fund whose

principals have prior professional investment experience but have not yet raised a fund

under their own management company.

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Subd. 2.

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Policy and goals.

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(a) By January 1, 2027, the state board must adopt a written

emerging, diverse, start-up, and franchise investment manager policy establishing quantitative

goals specific to asset class for the prudent inclusion of such managers across all asset

classes. The policy must describe procedures for broad outreach and solicitation, open

application windows, periodic pipeline review, and use of manager-of-managers structures

to achieve scale and diversification.

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(b) Goals established under this subdivision are aspirational and not binding on the state

board. The state board's investment decisions remain governed by the prudent person standard

in sections 11A.09 and 356A.04.

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Subd. 3.

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Waiver and seed-stage commitments authorized.

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(a) The state board may

waive minimum fund-size or prior-track-record requirements for a diverse investment

manager if the principals satisfy credentials and risk-management capacity consistent with

section 11A.09.

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(b) The state board may, within its prudence limits, make seed-stage or first-time capital

commitments to start-up funds or funds offered under Regulation A or the Regulation D

exemption under Code of Federal Regulations, title 17, section 230.506, paragraph (b) or

(c), provided the allocations do not exceed a de minimis percentage of total assets and are

subject to independent due diligence.

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Subd. 4.

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Reporting and transparency.

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Beginning July 1, 2027, and by July 1 each year

thereafter, the state board must file with the Legislative Commission on Pensions and

Retirement and publish on the board's website a public report detailing:

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(1) the number of emerging investment managers, diverse investment managers,

franchising managers, and start-up funds engaged;

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(2) total state assets managed by the managers and funds in clause (1);

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(3) relative performance; and

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(4) a narrative description of the board's outreach and pipeline development.

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Subd. 5.

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Coordination.

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The state board may coordinate with national and state

certification or technical-assistance entities to verify ownership status and support start-up

funds, provided the processes do not impose undue administrative burden.

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Sec. 3.

Minnesota Statutes 2024, section 11A.24, is amended by adding a subdivision to

read:

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Subd. 6a.

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Applicable policy.

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In exercising the state board's investment authority under

this section, the board must also carry out the policy created by the board under section

11A.238, subdivision 2.

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