121 East Wilson Street Post Office Box 7842 Madison, WI 53703
Dear Chief Counsel Chandler:
¶ 1. On behalf of the State of Wisconsin Investment Board (“SWIB”), you ask for clarification about the scope of a previous attorney general opinion, Wis. Op. Att’y Gen. OAG—11—08 (Dec. 16, 2008) (“2008 Opinion”).1 That opinion addressed SWIB’s expanded authority through statutory amendments in 2007 Wis. Act 212 (“2008 Amendments”). The opinion discussed the 2008 Amendments’ effect on SWIB’s investment authority over Wisconsin’s core retirement investment trust fund (the “Core Fund”). Specifically, the opinion stated that the 2008 Amendments broadly authorized SWIB to manage the assets in the Core Fund in any manner consistent with the statutory “prudent person” standard in Wis. Stat. § 25.15(2) (2019–20)2, regardless of whether a particular management approach was specifically listed in the statutes. ¶ 2. You now ask for an opinion clarifying whether SWIB’s expanded authority over the Core Fund includes issuing debt. Debt issuance, as you explain, is one type of a broader management strategy known as leveraging, which is when an entity invests more capital than cash on hand. You offer the following
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1 As observed in Wis. Op. Att’y Gen. OAG—11—08 (Dec. 16, 2008) (“2008 Opinion”), public trustees may seek guidance from the Attorney General via an opinion request. See Wis. Retired Tchrs. Ass’n, Inc. v. Employe Tr. Funds Bd., 207 Wis. 2d 1, 26, 558 N.W.2d 83 (1997). 2 All subsequent references to the Wisconsin Statutes are to the 2019–20 version unless otherwise indicated.
explanations for why SWIB is considering issuing debt. You explain that SWIB already engages in other types of leveraging, such as investing in instruments that can be bought without full payment at the date of purchase and by using securities it currently owns as collateral. SWIB desires to also use debt leveraging as part of an overarching diversified asset allocation strategy, with the goal of improving the fund’s efficiency, increasing returns, and decreasing overall risk. Further, the debt SWIB issues would come with a right of recourse only against the Core Fund. The request points out that some other large pension plans, including some in Canada, use debt issuance as part of their management strategies. For example, the Canada Pension Plan explains that it includes debt leveraging in its portfolio to ensure proper diversification and to target a specific level of overall risk.3 Any such actions would be subject to continual oversight by SWIB staff and approval by its Board of Trustees. Your request states that SWIB believes it has the authority to leverage by issuing debt, but that it seeks an opinion making that explicit because parties involved in the debt-issuance process may require such assurances.
¶ 3. I conclude that, based on the same reasoning in the 2008 Opinion, SWIB has the statutory authority to issue debt as part of its broad Core Fund management authority, provided that the statutory “prudent person” standard is met. Whether, in a particular situation, issuing debt meets that standard would depend on the specific circumstances. This opinion does not address whether issuing debt would in fact meet the standard in any particular scenario.
Background on SWIB’s powers, the 2008 Amendments, and the 2008 attorney general opinion.
¶ 4. As discussed in OAG—11—08, the 2008 Amendments vested SWIB with broad authority over the Wisconsin Retirement System’s Core Fund and, to a certain extent, its variable fund, the latter of which is not at issue here. Both funds are maintained by SWIB “for the purpose of managing the investments of the retirement reserve accounts,” which relates to the Wisconsin Retirement System. Wis. Stat. § 40.04(3); see also Wis. Stat. § 40.20 (creating the retirement system). State employers are included in the system, and other public employers may be. (See PDF for image)
3 Debt Issuance, CPP Investments, https://www.cppinvestments.com/the-fund/debt-issuance (last visited July 27, 2022). There are also reports that California’s state retirement system has resolved to issue debt to fund investments, allowing it to have 105% of its funds available for investment. Simon Moore, Major Pension Fund Adds Leverage As Assets Push Half A Trillion, Forbes, (Nov. 16, 2021, 2:01 PM), https://www.forbes.com/sites/simonmoore/ 2021/11/16/major-pension-fund-adds-leverage-as-assets-push-half-a-trillion/?sh=8b3721427 e1e. See Wis. Stat. §§ 40.02(28) (defining employer), 40.21 (setting out participating employers), 40.22(1) (setting out participating employees). SWIB has “exclusive control of the investment and collection of the principal and interest of all moneys loaned or invested from . . . [the Core Fund].” Wis. Stat. § 25.17(1)(br). To that end, there are provisions setting out specific investment options, such as Wis. Stat. § 25.17(3)(a), which authorizes investment in “loans, securities, and any other investments authorized by s. 620.22,” which, in turn, refers to that section’s inclusion of “[p]referred or common stock of any United States or Canadian corporation,” Wis. Stat. § 620.22(3), among other types of investments. ¶ 5. The funds are self-contained: “All costs of owning, operating, protecting, and acquiring property in which either trust has an interest shall be charged to the current income or market recognition account of the trust ” Wis.
Stat. § 40.04(3). The statutes further state that “[a]ny deficit occurring within the accounts of a benefit plan,” which includes the retirement system’s Core Fund, “shall be eliminated as soon as feasible by increasing the premiums, contributions or other charges applicable to that benefit plan.” Wis. Stat. §§ 40.04(1), 40.02(10) (defining benefit plan), 40.04(2) (setting out accounts and reserves). ¶ 6. Prior to the 2008 Amendments, SWIB had specifically listed investment powers, including when it came to the Core Fund. For example, as noted above, Wis. Stat. § 25.17(4) allows SWIB to invest “the funds of the [Core Fund] in loans, securities, or investments.” This office had opined in the past that, under the pre-2008 statutes, SWIB’s powers were only as specifically enumerated in those kinds of statutory lists. See 60 Op. Att’y Gen. 266 (1971); 78 Op. Att’y Gen. 189 (1989). This was sometimes called the “legal list.” ¶ 7. However, as the 2008 Opinion explains, the 2008 Amendments changed SWIB’s powers. Specifically, 2007 Wis. Act 212 created Wis. Stat. § 25.182, which broadly and expressly vested SWIB with management authority over the Core Fund in addition to, and notwithstanding, any other statute, provided that SWIB’s exercise of that authority complied with the “prudent person” standard in Wis. Stat. § 25.15(2): In addition to the management authority provided under any other provision of law, and notwithstanding any limitation on the board’s management authority provided under any other provision of law, the board shall have authority to manage the money and property of the core retirement investment trust and, subject to s. 25.17 (5), the variable retirement investment trust in any manner that does not violate the standard of responsibility specified in s. 25.15 (2). Wis. Stat. § 25.182. As the emphasized language makes plain, and as recognized in the 2008 Opinion, this language expressly removes other limits on SWIB’s Core Fund management authority. It does so in two ways, by stating that SWIB’s management authority over the Core Fund: (1) is “in addition to” other authority and (2) operates “notwithstanding” any other statutory limits. OAG—11—08. ¶ 8. Rather, the current limit is the standard of responsibility in Wis. Stat.
§ 25.15(2). It establishes a “prudent person” management standard based on professionals acting in similar capacities, and it also calls for diversity of investment and for SWIB to administer trusts solely for the purposes of the trust: Except as provided in s. 25.17 (2) and (3) (c), the standard of responsibility applied to the board when it manages money and property shall be all of the following: (a)
To manage the money and property with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a similar capacity, with the same resources, and familiar with like matters exercises in the conduct of an enterprise of a like character with like aims.(b)
To diversify investments in order to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so, considering each trust’s or fund’s portfolio as a whole at any point in time.(c)
To administer assets of each trust or fund solely for the purpose of ensuring the fulfillment of the purpose of each trust or fund at a reasonable cost and not for any other purpose.¶ 9. The 2008 Amendments also altered section 25.15(2) in two other ways. First, prior to the amendment, the introductory sentence provided that the standard of responsibility applied to “the board when it invests money or property.” Wis. Stat.
§ 25.15(2) (2005–06). The amendment removed the more limited term “invests” and substituted the broader word “manages.” Second, similarly, section 25.15(2)(a) used to direct SWIB “[t]o invest, sell, reinvest and collect income and rents” according to the “prudent person” standard. Wis. Stat. § 25.15(2)(a) (2005–06). The amendment removed that more limited list and substituted the general language directing SWIB “[t]o manage the money and property” according to the “prudent person” standard. Wis. Stat. § 25.15(2)(a). ¶ 10. The 2008 Opinion also explains that legislative history reinforces the statutory text. A contemporaneous Legislative Reference Bureau analysis explained that, “instead of its investment authority being limited to the authorized lists, SWIB may manage the money and property of the core trust . . . in any manner that does not violate SWIB’s standard of responsibility.” OAG—11—08, at 5 (quoting Analysis by Wis. Legis. Reference Bureau of 2007 Wis. Assemb. B. 623).
¶ 11. The opinion thus concluded that the 2008 Amendments authorized SWIB to act according to “the standard of prudence under Wis. Stat. § 25.15(2), even if those investments are not on the ‘legal list.’” OAG—11—08, at 6. SWIB’s statutory authority to issue debt is subject to same analysis of its management authority described in Wis. Op. Att’y Gen. OAG—11—08.
¶ 12. Your opinion request asks whether SWIB has the authority to issue debt as a management strategy for the Core Fund. You explain that SWIB would issue the debt, which it believes can be done “at attractively low interest rates” given its strong financial circumstances, and then invest the proceeds.
¶ 13. I conclude, based on the plain text of the statutes summarized above, that SWIB would have the authority to issue debt provided it satisfies the “prudent person” and other standards listed in Wis. Stat. § 25.15(2). The statutory standards apply the same way to issuing debt as a management tool as they apply to any other strategy. ¶ 14. The meaning of provisions in Wis. Stat. ch. 25 presents a question of statutory interpretation. “[S]tatutory language is interpreted in the context in which it is used; not in isolation but as part of a whole; in relation to the language of surrounding or closely-related statutes; and reasonably, to avoid absurd or unreasonable results.” State ex rel. Kalal v. Cir. Ct. for Dane Cnty., 2004 WI 58, ¶ 46, 271 Wis. 2d 633, 681 N.W.2d 110. “Statutory language is read where possible to give reasonable effect to every word, in order to avoid surplusage.” Id. “If this process of analysis yields a plain, clear statutory meaning, then there is no ambiguity, and the statute is applied according to this ascertainment of its meaning.” Id. (quoting Bruno v. Milwaukee County, 2003 WI 28, ¶ 20, 260 Wis. 2d 633, 660 N.W.2d 656). Ascertaining the plain meaning may be aided by “reference to the dictionary definition.” Id. ¶ 53. ¶ 15. Further, statutory history—“the previously enacted and repealed provisions of a statute”—is part of a plain-meaning contextual analysis. County of Dane v. Lab. & Indus. Rev. Comm’n, 2009 WI 9, ¶ 27, 315 Wis. 2d 293, 759 N.W.2d 571 (quoting Richards v. Badger Mut. Ins. Co., 2008 WI 52, ¶ 22, 309 Wis. 2d 541, 749 N.W.2d 581). Lastly, extrinsic legislative history, while not part of a plain meaning analysis, may be consulted to confirm that analysis. State ex rel. Kalal, 271 Wis. 2d 633, ¶ 51. ¶ 16. That framework was properly applied in the 2008 Opinion, which addressed the plain meaning of the statutory terms in the 2008 Amendments that explicitly broadened SWIB’s management authority over the Core Fund. The opinion further confirmed that plain meaning based on legislative history. I conclude that there is no reason to treat debt issuance differently. In other words, there is no statutory basis to limit the “prudent person” standard to categorically exclude debt issuance.
¶ 17. The “prudent person” standard refers to SWIB’s duty to “manage the money and property” of the Core Fund. Wis. Stat. § 25.25(2)(a). The term “manage” is not defined, so a court properly would resort to a dictionary. State ex rel. Kalal, 271 Wis. 2d 633, ¶ 53 (explaining that a term’s meaning may be discerned “by reference to the dictionary definition”). The term broadly means “to handle or direct with a degree of skill.” Manage, Merriam-Webster, https://www.merriam-webster. com/dictionary/manage (last visited July 27, 2022). Further, the statutory history shows that the Legislature removed more limited terms (“invest,” “sell”) and replaced them with the broader term, “manage.” Thus, there is no basis, either in the text or the statutory history, to limit the “prudent person” standard to the superseded statutory limits on investing in specific ways. Instead, SWIB is allowed to go beyond those specific limits so long as it handles the trust “with a degree of skill” contemplated by the “prudent person” standard. ¶ 18. The text of Wis. Stat. § 25.182 does not single out a management strategy as forbidden but broadly confers “management authority” “[i]n addition to” and “notwithstanding” any other grant or limit of authority in the statutes, provided the standards in Wis. Stat. § 25.15(2) are met. Thus, for issuing debt with recourse against the Core Trust, as with any strategy, the question is whether the
