__________________
State of Wisconsin
Investment Board
Madison
November 17, 1999
To the Honorable, the Legislature:
Section
25.17(14r) of the Statutes requires that the State of Wisconsin Investment Board (SWIB) submit a report to the Joint Committee on Audit, Joint Committee on Finance and the Chief Clerks of each House summarizing any change in the Board's investment policies, upon adoption of the change.
On October 14, 1999 the Board approved modifications to the Investment Policy Guidelines relating to the Non-Traditional, private equity portfolios. Attached are the modified guidelines. Additions to the previous guidelines are shaded and deletions are the stricken material.
Temporary investment guideline changes were adopted at the November 4th Board meeting, affecting the State Investment Fund (SIF). Because these changes are temporary, the investment guideline document will not be amended and modified guidelines are not attached.
Non-Traditional Portfolio
The Non-Traditional portfolio represents a broadly diversified portfolio, invested in a wide variety of investments which may not fall within current parameters of traditional asset classes such as publicly traded stocks and bonds. The portfolio is intended to be global in nature and focus on investment instruments which have been undervalued due to complex or novel structuring, indeterminate risk exposures and other factors creating market inefficiencies. The portfolio is invested in both public and private equities and fixed income investments, partnerships and other fund investments.
Since its inception, the portfolio has evolved from a significant concentration in domestic stocks to a more global non-traditional investment approach. We believe that there is greater value in emerging markets today. In order to capitalize on these opportunities, the Board revised the portfolio's emerging market exposure limit from 33% to 60%. Although it is unlikely that the new limit will be approached, this change has the effect of increasing the Fixed Trust Fund's potential emerging market exposure from an upper limit of 5% to about 6% of the fund. The current exposure is approximately 2%.
Private Equity Portfolios
A569
SWIB presently has two private equity portfolios in the Private Placements division: the Leveraged Buy-out Portfolio (LBO) and the Venture Capital Portfolio (Ven-cap). SWIB also has investment guidelines which grant authority for certain small private equity investments, without the requirement that the portfolio manager gain prior approval from the Board. These are outlined under the Small Investment Pool (SIP) section of the guidelines. The Board approved changes for these guidelines which served to clarify the existing and historical investment activity in these areas. The guideline changes did not materially alter the investment practices in these portfolios.
The LBO portfolio consists of direct leveraged buy-out investments in U.S. corporations as well as investments in leveraged buy-out funds. Target LBO investments are existing companies which are undergoing an ownership change and have the potential for significant growth and operating improvement. The form of the investments in the LBO portfolio can be direct debt and/or equity ownership in a specific company or investments in LBO funds which, in turn, make similar types of debt and/or equity investments on behalf of the fund. The Board approved guideline changes which clarified the authority for direct investments.
The Ven-cap portfolio invests in venture capital funds which, in turn, invest in new companies in the early stages of development, generally prior to a public offering of the company's stock. The Board adopted guideline changes which specifically reference the Fixed Trust fund's statutory limitation for venture capital investing. This limit is presently 2% of the value of the Fixed Trust Fund. Other minor modifications were made for clarification purposes.
The SIP is designed to facilitate follow-on investments that are too small to warrant trustee involvement. These situations frequently occur quite rapidly and may or may not take the identical structure of the existing holdings. The ability to react quickly is of critical importance to the success of a direct investment program. These guidelines were modified to clarify that appropriate SIP investments should exhibit similar credit-quality characteristics as the original investment (previously approved by the Board). Another minor modification removed the authority to make new investments in venture capital and LBO funds. This was done because there was no reasonable likelihood that such authority would ever be utilized.
Consistent with current practice for all SWIB portfolios, the private equity portfolio guidelines were modified to grant explicit authority for the portfolio manager to sell assets at his or her discretion. The guidelines for these portfolios were previously silent in this area.
State Investment Fund
The Board established a temporary increase to the Wisconsin Certificate of Deposit program limit. An increase in the program limit of $500 million was adopted in anticipation of increased liquidity needs of Wisconsin banks and to provide the SIF with an additional investment option in the months of November and December. The program limit will revert back to $350 million in the spring of 2000.
Please contact me if you have any questions about this report.
Sincerely,
Patricia Lipton
Executive Director
__________________
State of Wisconsin
Public Service Commission
Madison
November 23, 1999
To the Honorable, the Assembly:
The enclosed report on Piepgras Holding Company (Piepgras) and its impact on the operations of St. Croix Valley Natural Gas Company (St. Croix) was prepared as required by Wis. Stat. 196.795(7)(ar) for distribution to the Legislature under Wis. Stat. 13.172(2). This report covers financial operations for the calendars 1996 through 1998.
Sincerely,
Lynda L. Dorr
Secretary to the Commission
