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Board votes to pull proposed investment rules back for broader review; consultants outline possible guideline expansions
Summary
The board authorized DFA and the Treasurer's Office to pull proposed rules from the Arkansas Legislative Council for a holistic review. Consultants from Federated Hermes and Arnold & Porter recommended clarifying guidelines to allow corporate obligations, institutional CDs, SEC Rule 144A and Reg D private placements, and applying a prudent-investor approach.
The State Board of Finance voted to ask the Department of Finance and Administration and the Arkansas State Treasurer's Office to request that the Arkansas Legislative Council return a set of proposed investment rules so the board can conduct a broader, consultant-led review before beginning the administrative rulemaking process.
Chief Deputy Treasurer Grant Wallace told the board the office engaged Federated Hermes and legal consultants from Arnold & Porter to review the statute and current guidelines. David, a partner at Arnold & Porter, told the board the statute already permits a range of investment types "including corporate obligations rated BBB or higher by two national rating agencies," and that the guidelines could be updated to clarify how to include asset-backed securities, institutional bank CDs, SEC Rule 144A securities and Regulation D private placements, municipal obligations and supranational bonds.
David recommended moving from rigid category percentage limits to a modern portfolio/prudent-investor approach that evaluates portfolio-level characteristics such as duration and maximum maturity, while keeping counterparty exposure limits. Amy Michelison of Federated Hermes said updating legacy limits (for example, commercial paper maturity restrictions) could allow the treasury to take measured, incremental risks that enhance returns while managing downside exposure.
Board members asked whether expanding permitted investments would disadvantage Arkansas community banks; Amy Michelison answered that allowing institutional CDs does not negate existing local-bank programs and often involves the same institutions that issue commercial paper. Members also asked about consultant compensation; Federated Hermes said it was not charging for the advice presented.
The motion to pull the rules back for a more holistic review was made, seconded and approved. Grant Wallace said the office aims to return recommendations to the board in November and, if approved, to take them to the Arkansas Legislative Council in January for legislative consideration.
