840 CMR 19.00: EXEMPTIONS FROM INVESTMENT RESTRICTIONS

19.01: Effect of Existing Exemptions

(1) Any board which has received an exemption from restrictions on investments of
M.G.L. c. 32, § 23(2)(b)(i) through (vii) on or before the effective date of 840 CMR
19.00 shall be deemed to have applied for and received an exemption for investment
in the asset class which was the subject of the prior exemption. In the event any
such board, following the completion of a competitive process as required by these
regulations, selects a qualified investment manager appearing on a list of qualified
investment managers promulgated by the Public Employee Retirement
Administration Commission the board may retain said qualified investment manager
without receiving a further exemption, provided, however, that the board has
complied with other provisions of 840 CMR. Said list shall consist of all qualified
investment managers which have been the subject of approved applications for
exemption on or before the effective date of 840 CMR 19.00 and any qualified
investment manager which is the subject of an approved application for exemption
after that date

(2) Boards shall use the following process in selecting qualified investment
managers to invest in equity, fixed income, cash or cash equivalents. Boards shall
establish specifications and criteria for selection including:
      (a) the total size of the portfolio to be managed by each prospective manager;
      (b) the number of managers that will be used for the total portfolio;
      (c) an initial determination as to whether existing managers will be retained
      automatically or reviewed as part of the overall selection process;
      (d) the type(s) of manager to be selected;
      (e) the size of the management firm desired;
      (f) the style or investment philosophy of the manager desired;
      (g) the methodology or investment process desired;
      (h) the range of fees that are considered tolerable;
      (i) the investment manager's use of soft dollar services; and
      (j) the manager's experience in policy restrictions including South Africa,
      Northern Ireland and tobacco restrictions.

(3) Boards shall use the following process in selecting qualified investment
managers to invest in real estate. Boards shall establish specifications and criteria
for selection including:
      (a) the total size of the portfolio to be managed by each prospective manager;
      (b) the type of real estate investment made by each qualified investment
      manager (unleveraged, leveraged, participating mortgage, straight-rate loans, or
      insured loans);
      (c) the construction stage of the properties (tenanted, rent-up phase, under
      construction or to be built);
      (d) the types of property to be selected (retail, office, residential or industrial);
      (e) the geographic distribution of properties (regional, limited geographic
      diversification, or national);
      (f) the number of properties to be selected by each investment manager; and
      (g) the range of fees that are considered tolerable.

(4) Real estate investments shall not exceed 5% of the total market value of the
portfolio at the time of investment, provided that in any system with assets in excess
of $50,000,000, real estate investments may be made up to an amount equal to 10%
of the total market value of the portfolio at the time of investment.

(5) Real estate investments shall be diversified by property type, geographic
location and construction stage unless under the circumstances it is clearly prudent
not to do so.

(6) No board shall invest in a group trust, limited partnership, or other form of
pooled investment which invests in real estate if:
      (a) the board's investment would constitute more than 10% of the funds thereof;
      (b) the investments of all Massachusetts contributory retirement systems would
      constitute more than 50% of the funds thereof; or
      (c) more than 20% of the funds thereof are invested in a single investment.

(7) Boards shall use the following process in selecting qualified investment
managers to invest in alternative investments:
      (a) Boards shall establish specifications and criteria for selection including:
            1. the total size of the portfolio to be managed by each alternative
            investment manager;
            2. the funding stage orientation (seed financing, start-up, other early stage,
            second stage financing, later stage financing, or other);
            3. the targeted industries or sectors;
            4. the location or region (geographic focus);
            5. target size of each investment, how much is generally invested and how
            much is kept in reserve;
            6. the range of fees that are considered tolerable, provided, however, that in
            no event shall a Board retain a qualified investment manager whose fee is
            based on a percentage of committed capital, provided, however, that such a
            fee may be paid for one year after the partnership commences operations,
            and provided further, that such a fee is paid by all investors;
            7. the expected return on investment.

(8) Alternative investments shall not exceed 3% of the total market value of the
portfolio at the time of the investment provided that, in any system with assets in
excess of $25,000,000, alternative investments may be made up to an amount equal
to 5% of the total market value of the portfolio at the time of investment.

(9) Alternative investments shall be diversified by funding stage, geographic
location and targeted industries unless under the circumstances it is clearly prudent
not to do so.

(10) No board shall invest in a group trust, limited partnership, or other form of
pooled investment which invests in alternative investments if:
      (a) the board's investment would constitute more than 10% of the funds thereof;
      (b) the investments of all Massachusetts contributory retirement systems would
      constitute more than 50% of the funds thereof; or, more than 20% of the funds
      thereof are invested in a single investment.

(11) Boards shall select a qualified investment manager in accordance with
competitive practices and shall notify the Commission that such practices were
followed prior to contracting with a vendor and shall maintain a separate file for
each such selection which details the process and which shall be subject to audit.

19.02: Complete Exemption by Commission

      The Commission shall grant exemption from the restrictions on investment of
M.G.L. c. 32, § 23(2)(b)(i) through (vii), inclusive as follows:

(1) Complete Exemption. Boards assigned 70% or more of the total applicable
points pursuant to the criteria developed in accordance with 840 CMR 19.05 shall be
granted complete exemption.

(2) No Exemption. Boards assigned less than 70% of the total applicable points
pursuant to the criteria developed in accordance with 840 CMR 19.05 shall be
granted no exemption.

(3) The Commission shall also consider other factors, including but not limited to,
any regulatory action, litigation, or legal proceedings involving the qualified
investment manager in the past five years and any other matters relating to the
qualifications of the investment manager and shall determine whether any such
matters warrant denial of an exemption. The Commission shall notify the board and
the qualified investment manager of the reasons for any such denial of exemption.
The Commission may withhold approval of an exemption if it is in the best interests
of the retirement system.

(4) The Commission shall notify the board of its determination no later than ten
days following receipt of all information needed to make such determination.

(5) The provisions of M.G.L. c. 32, § 23(2)(b)(i) through (vii) shall not apply to the
retention of a qualified investment manager to invest assets of a board in fixed
income securities or equities of United States Corporations provided those securities
or shares are not an investment in alternative investments or real estate.

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