0001| AN ACT | 0002| RELATING TO INSTITUTIONAL FUNDS; ENACTING THE UNIFORM MANAGEMENT | 0003| OF INSTITUTIONAL FUNDS ACT; REGARDING AUTHORITY TO INVEST FUNDS; | 0004| PROVIDING FOR DELEGATION OF AUTHORITY TO MANAGE FUNDS; PROVIDING A | 0005| STANDARD OF CONDUCT AND PORTFOLIO STRATEGY FOR MANAGEMENT OF | 0006| FUNDS; AMENDING AND ENACTING SECTIONS OF THE NMSA 1978. | 0007| | 0008| BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO: | 0009| Section 1. DEFINITIONS.--As used in the Uniform Management of Institutional Funds | 0010| Act: | 0011| A. "institution" means: | 0012| (1) an incorporated or unincorporated organization organized and | 0013| operated exclusively for educational, religious, charitable or other eleemosynary purposes; | 0014| (2) a government, a governmental subdivision or agency or other | 0015| governmental organization to the extent that it holds funds exclusively for educational, religious, | 0016| charitable or other eleemosynary purposes; or | 0017| (3) an organization described in Section 501(c)(3) of the Internal Revenue | 0018| Code organized and operated exclusively to support one or more organizations described in | 0019| Paragraphs (1) and (2) of Subsection A of this section. | 0020| "Institution" does not include an institution with assets of more than ten million dollars | 0021| ($10,000,000) and that is organized and operated for private educational purposes; | 0022| B. "institutional fund" means a fund held by an institution for its exclusive use, | 0023| benefit or purposes, or for the exclusive use, benefit or purposes of one or more other | 0024| institutions, but does not include: | 0025| (1) a fund held for an institution by a trustee that is not an institution; | 0001| (2) a fund in which a beneficiary that is not an institution has an interest, | 0002| other than possible rights that could arise upon violation or failure of the purposes of the fund; | 0003| (3) a fund established pursuant to the provisions of Article 8, Section 10 | 0004| of the constitution of New Mexico; or | 0005| (4) a fund established pursuant to the provisions of Article 12, Section 2 | 0006| of the constitution of New Mexico; | 0007| C. "endowment fund" means an institutional fund, or any part thereof, not wholly | 0008| expendable by the institution on a current basis under the terms of the applicable gift instrument; | 0009| D. "governing board" means the body responsible for the management of an | 0010| institution or of an institutional fund; | 0011| E. "historic dollar value" means the aggregate fair value in dollars of: | 0012| (1) an endowment fund at the time it became an endowment fund; | 0013| (2) each subsequent donation to the fund at the time it is made; and | 0014| (3) each accumulation made pursuant to a direction in the applicable gift | 0015| instrument at the time the accumulation is added to the fund. The determination of historic dollar | 0016| value made in good faith by the institution is conclusive; and | 0017| F. "gift instrument" means a will, deed, grant, conveyance, agreement, | 0018| memorandum, writing, articles, bylaws, charter, declaration, agreement, constitutional provision, | 0019| law, rule, regulation or other governing document under which property is transferred to or held | 0020| by an institution as an institutional fund. | 0021| Section 2. ACCUMULATION OF ANNUAL NET INCOME--RESERVE-- | 0022| APPROPRIATION OF APPRECIATION.-- | 0023| A. The governing board may accumulate so much of the annual net income of an | 0024| institutional fund as is prudent under the standard established by Section 6 of the Uniform | 0025| Management of Institutional Funds Act. The governing board may hold any or all of the | 0001| accumulated annual net income in an income reserve for subsequent expenditure for the uses and | 0002| purposes for which the institutional fund is established or may add any or all of the accumulated | 0003| annual net income to the principal of the institutional fund as is prudent under the standard | 0004| established by Section 6 of the Uniform Management of Institutional Funds Act. | 0005| B. Subject to the limitation set forth in Subsection C of this section, the | 0006| governing board may appropriate for expenditure for the uses and purposes for which an | 0007| endowment fund is established so much of the net appreciation, realized and unrealized, in the | 0008| fair value of the assets of an endowment fund over the historic dollar value of the fund as is | 0009| prudent under the standard established by Section 6 of the Uniform Management of Institutional | 0010| Funds Act. | 0011| C. The appropriation for expenditure by the governing board of the net | 0012| appreciation of an endowment fund in any one year in an amount greater than seven percent of | 0013| the fair market value of the endowment fund, calculated on the basis of market values determined | 0014| at least quarterly and averaged over a period of three or more years, shall create a rebuttable | 0015| presumption of imprudence on the part of the governing board. | 0016| D. This section does not limit the authority of the governing board to expend | 0017| funds as permitted under other law, the terms of the applicable gift instrument or charter, or the | 0018| articles of incorporation or other governing instrument of the institution. | 0019| Section 3. RULES OF CONSTRUCTION.-- | 0020| A. Section 2 of the Uniform Management of Institutional Funds Act does not | 0021| apply if, and to the extent that, the applicable gift instrument indicates the donor's intention that | 0022| annual net income shall not be accumulated or added to the principal or that net appreciation | 0023| shall not be expended. A restriction upon accumulation of annual net income or addition of such | 0024| income to the principal or the expenditure of net appreciation may not be implied from a | 0025| designation of a gift as an endowment or from a direction or authorization in the applicable gift | 0001| instrument to use only "income", "interest", "dividends" or "rents, issues or profits", or "to | 0002| preserve the principal intact", or a direction that contains other words of similar import. | 0003| B. Except as otherwise provided in Subsection A of this section, the following | 0004| terms or comparable language in the provisions of a gift instrument, unless otherwise limited or | 0005| modified, authorizes any investment strategy permitted under the Uniform Management of | 0006| Institutional Funds Act: "investments permitted by law for investment of trust funds", "legal | 0007| investments", "authorized investments", "using the judgment and care under the circumstances | 0008| then prevailing that persons of prudence, discretion and intelligence exercise in the management | 0009| of their own affairs, not in regard to speculation, but in regard to the permanent disposition of | 0010| their funds, considering the probable income as well as the probable safety of their capital", | 0011| "prudent man rule", "prudent trustee rule", "prudent person rule" and "prudent investor rule". | 0012| Section 4. INVESTMENT AUTHORITY.--In addition to an investment otherwise | 0013| authorized by law or by the applicable gift instrument, and without restriction to investments a | 0014| fiduciary may make, but subject to any specific limitations set forth in the applicable gift | 0015| instrument or in the applicable law other than law relating to investments by a fiduciary, the | 0016| governing board may: | 0017| A. invest and reinvest an institutional fund in kind of property or type of | 0018| investment consistent with the standards of the Uniform Management of Institutional Funds Act, | 0019| including any real or personal property deemed advisable by the governing board, whether or not | 0020| it produces a current return, including mortgages, stocks, bonds, debentures and other securities | 0021| of profit or nonprofit corporations, shares in or obligations of associations, limited liability | 0022| companies, partnerships or individuals and obligations of any government or subdivision or | 0023| instrumentality thereof; | 0024| B. retain property contributed by a donor to an institutional fund for as long as the | 0025| governing board deems advisable; | 0001| C. include all or any part of an institutional fund in any pooled or common fund | 0002| maintained by the institution; or | 0003| D. invest all or any part of an institutional fund in any other pooled or common | 0004| fund available for investment, including shares or interests in regulated investment companies, | 0005| mutual funds, common trust funds, investment partnerships, real estate investment trusts or | 0006| similar organizations in which funds are commingled and investment determinations are made by | 0007| persons other than the governing board. | 0008| Section 5. DELEGATION OF INVESTMENT AND MANAGEMENT FUNCTIONS.-- | 0009| A. Except as otherwise provided by applicable law relating to governmental | 0010| institutions or funds, a governing board may delegate investment and management functions that | 0011| a prudent governing body could delegate under the circumstances. A governing board shall | 0012| exercise reasonable care, skill and caution in: | 0013| (1) selecting an agent; | 0014| (2) establishing the scope and terms of the delegation, consistent with the | 0015| purposes of the institutional fund; and | 0016| (3) periodically reviewing the agent's actions in order to monitor the | 0017| agent's performance and the agent's compliance with the terms of the delegation. | 0018| B. In performing a delegated function, an agent owes a duty to the governing | 0019| board to exercise reasonable care to comply with the terms of the delegation. | 0020| C. The members of a governing board who comply with the requirements of | 0021| Subsection B of this section are not liable for the decisions or actions of the agent to whom the | 0022| function was delegated. | 0023| D. By accepting the delegation of an investment or management function from a | 0024| governing board of an institution that is subject to the laws of New Mexico, an agent submits to | 0025| the jurisdiction of the courts of New Mexico in all actions arising from the delegation. | 0001| E. The governing board may authorize the payment of compensation for | 0002| investment advisory or management services. | 0003| Section 6. STANDARD OF CONDUCT--PORTFOLIO STRATEGY.-- | 0004| A. Members of a governing board shall invest and manage an institutional fund | 0005| as a prudent investor would, by considering the purposes, distribution requirements and other | 0006| circumstances of the fund. In satisfying this standard, the governing board shall exercise | 0007| reasonable care, skill and caution. | 0008| B. Among the circumstances that a governing board shall consider are: | 0009| (1) long- and short-term needs of the institution in carrying out its | 0010| educational, religious, charitable or other eleemosynary purposes; | 0011| (2) its present and anticipated financial requirements; | 0012| (3) the expected total return from income and the appreciation of its | 0013| investments; | 0014| (4) general economic conditions; | 0015| (5) the possible effect of inflation or deflation; | 0016| (6) the expected tax consequence, if any, of investment decisions or | 0017| strategies; | 0018| (7) the role that each investment or course of action plays within the | 0019| overall investment portfolio of the institutional fund; | 0020| (8) other resources of the institution; | 0021| (9) the needs of the institution and the institutional fund for liquidity, | 0022| regularity of income and preservation or appreciation of capital; and | 0023| (10) an asset's special relationship or special value, if any, to the purposes | 0024| of the applicable gift instrument or to the institution. | 0025| C. A governing board's investment and management decisions about individual | 0001| assets shall be made not in isolation but in the context of the institutional fund's portfolio of | 0002| investments as a whole and as a part of an overall investment strategy having risk and return | 0003| objectives reasonably suited to the institution. | 0004| D. A governing board shall make a reasonable effort to verify the facts relevant to | 0005| the investment and management of institutional fund assets. | 0006| E. A governing board shall diversify the investments of an institutional fund | 0007| unless the board reasonably determines that, because of special circumstances, the purposes of | 0008| the fund are better served without diversifying. | 0009| F. Subject to the provisions of Subsection B of Section 4 of the Uniform | 0010| Management of Institutional Funds Act, within a reasonable time after receiving donated assets, a | 0011| governing board shall review the donated assets and make and implement decisions concerning | 0012| the retention and disposition of assets in order to bring the portfolio of the institutional fund into | 0013| compliance with the purposes, terms, distribution requirements and other circumstances of the | 0014| institutional fund and with the requirements of the Uniform Management of Institutional Funds | 0015| Act. | 0016| G. A governing board shall invest and manage the assets of an institutional fund | 0017| solely in the interest of the institution. | 0018| H. In investing and managing assets of an institutional fund, a governing board | 0019| may incur only costs that are appropriate and reasonable in relation to the assets, the purposes of | 0020| the fund and the terms of the gift instrument. | 0021| Section 7. RELEASE OF RESTRICTIONS ON USE OR INVESTMENT.-- | 0022| A. With the written consent of the donor, the governing board may release, in | 0023| whole or in part, a restriction imposed by the applicable gift instrument on the use or investment | 0024| of an institutional fund. | 0025| B. If written consent of the donor cannot be obtained by reason of his death, | 0001| disability, unavailability or impossibility of identification, the governing board may apply in the | 0002| name of the institution to the district court for release of a restriction imposed by the applicable | 0003| gift instrument on the use or investment of an institutional fund. The attorney general shall be | 0004| notified of the application and shall be given an opportunity to be heard. If the district court | 0005| finds that the restriction is obsolete, inappropriate or impracticable, it may by order release the | 0006| restriction in whole or in part. A release under this subsection may not change an endowment | 0007| fund to a fund that is not an endowment fund. | 0008| C. A release under this section may not allow a fund to be used for purposes other | 0009| than the educational, religious, charitable or other eleemosynary purposes of the institution | 0010| affected. | 0011| D. This section does not limit the application of the doctrine of cy-pres. | 0012| Section 8. REVIEWING COMPLIANCE.--Compliance with the Uniform Management | 0013| of Institutional Funds Act is determined in light of the facts and circumstances existing at the | 0014| time of a governing board's decision and not by hindsight. | 0015| Section 9. SEVERABILITY.--If any provision of the Uniform Management of | 0016| Institutional Funds Act or the application thereof to any person or circumstances is held invalid, | 0017| the invalidity shall not affect other provisions or applications of that act that can be given effect | 0018| without the invalid provision or application, and to this end the provisions of the Uniform | 0019| Management of Institutional Funds Act are declared severable. | 0020| Section 10. APPLICATION.--The Uniform Management of Institutional Funds Act | 0021| applies to gift instruments executed or in effect on or after its effective date and to institutional | 0022| funds existing on and created after its effective date. The Uniform Management of Institutional | 0023| Funds Act governs any decisions and actions taken after its effective date. | 0024| Section 11. UNIFORMITY OF APPLICATION AND CONSTRUCTION.--The Uniform | 0025| Management of Institutional Funds Act shall be so applied and construed as to effectuate its | 0001| general purpose to make uniform the law with respect to the subject of that act among those | 0002| states that enact it. | 0003| Section 12. SHORT TITLE.--Sections 1 through 12 of this act may be cited as the | 0004| "Uniform Management of Institutional Funds Act". | 0005| Section 13. Section 21-1-38 NMSA 1978 (being Laws 1991, Chapter 69, Section 1) is | 0006| amended to read: | 0007| "21-1-38. DEFINITION--REQUIREMENTS FOR ADOPTION OF INVESTMENT | 0008| POLICY FOR INVESTING ENDOWMENT FUNDS.-- | 0009| A. As used in this section: | 0010| (1) "endowment funds" means funds: | 0011| (a) acquired by gift by an educational institution with respect to | 0012| which the donors or other outside agencies have stipulated as a condition of the gift, and the | 0013| stipulation is expressed specifically in the gift instrument, that the principal is to be maintained | 0014| and invested for the purpose of producing current and future income that may either be added to | 0015| the principal or expended, and the maintenance of the principal may be either: 1) held inviolate | 0016| and in perpetuity; or 2) expended after the passage of a stated period of time or upon the | 0017| happening of a specified event; and | 0018| (b) notwithstanding the source of acquisition, that the governing | 0019| board of the educational institution has determined and has designated by a written instrument, | 0020| either revocable or irrevocable, to be retained for long-term investment; and | 0021| (2) "educational institution" means an educational institution designated | 0022| in Article 12, Section 11 of the constitution of New Mexico and any post-secondary educational | 0023| institution, which term includes, but is not limited to, an academic, vocational, technical, | 0024| business, professional or other school, college or university or other organization or person | 0025| offering or purporting to offer courses, instruction, training or education through correspondence | 0001| or in person, to any individual within this state over the compulsory school attendance age, if that | 0002| post-secondary educational institution is directly supported in whole or in part by state or local | 0003| taxation. | 0004| B. The board of finance, as that term is defined in Section 6-10-9 NMSA 1978, | 0005| for each of the educational institutions: | 0006| (1) shall adopt regulations governing the investment of endowment funds | 0007| by the institution's board of finance, which regulations shall provide at least for: | 0008| (a) the application of the investment standard of conduct described | 0009| in Section 6-8-10 NMSA 1978 and the Uniform Management of Institutional Funds Act as the | 0010| standard for evaluating an investment; | 0011| (b) the appointment of an investment advisory committee made up | 0012| of individuals having demonstrated experience and skill in the field of the investment of | 0013| endowment funds; and | 0014| (c) the development of a comprehensive investment policy for the | 0015| investment of endowment funds by the institution, with the advice and upon the recommendation | 0016| of the investment committee; and | 0017| (2) may employ an institutional endowment funds investment manager | 0018| and delegate to him the power to make purchases, sales exchanges, investments and | 0019| reinvestments of endowment funds." | 0020| Section 14. EFFECTIVE DATE.--The effective date of the provisions of this act is | 0021| July 1, 1997. |