Summary of HF 4953 (Minnesota, 2025-2026)
Purpose and intent
HF 4953 would require the State Board of Investment (SBI) to develop and adopt policies to broaden investment participation to emerging, diverse, start-up, and franchise investment managers. The bill authorizes waivers and seed-stage commitments to such managers and mandates annual reporting on related activity. The overarching aim is to diversify the pool of investment managers and increase opportunities for smaller or non-traditional fund managers while maintaining prudent investment standards.
Key provisions and changes
1) New policy obligation for the State Board of Investment
- The SBI must adopt an “emerging, diverse, start-up, and franchise investment manager policy” (Section 11A.04, new subdivision 16).
- The policy must be adopted (and can be revised) at the board’s discretion and is not subject to the Administrative Procedure Act.
2) New statutory framework for the policy (11A.238)
HF 4953 establishes a new statute defining and guiding the policy:
- Definitions (Subd. 1)
- Diverse investment manager: a majority-owned firm by women, racial minorities, or persons with substantial disabilities.
- Emerging investment manager: a manager with certain regulatory status, under $1 billion in assets under management in its asset class, and demonstrated professional experience and governance consistent with 11A.09.
- Franchise equity/franchising investment: investments in franchise models (e.g., multiunit or brand-replication systems) via private vehicles.
- Manager of managers: a firm that allocates capital among multiple emerging/diverse/start-up/franchise managers.
- Start-up fund: a newly formed fund with principals having prior investment experience but not yet managing their own fund.
- Policy and goals (Subd. 2)
- By January 1, 2027, SBI must adopt a written policy with quantitative goals for including diverse, emerging, start-up, and franchise managers across asset classes.
- The policy must outline outreach, open application windows, pipeline reviews, and use of manager-of-managers structures to achieve scale and diversification.
- Goals are aspirational; investment decisions remain governed by prudent person standards (11A.09 and 356A.04).
- Waiver and seed-stage commitments (Subd. 3)
- SBI may waive minimum fund-size or track-record requirements for diverse managers if credentials and risk management meet 11A.09 standards.
- SBI may make seed-stage or first-time commitments to start-up funds or Regulation A/D funds within prudence, subject to independent due diligence and de minimis asset allocation limits.
- Reporting and transparency (Subd. 4)
- Beginning July 1, 2027, and annually thereafter, SBI must report to the Legislative Commission on Pensions and Retirement and publish on its website:
- Number of emerging/diverse/franchise/start-up funds engaged.
- Total state assets managed by these managers/funds.
- Relative performance.
- Narrative on outreach and pipeline development.
- Coordination (Subd. 5)
- SBI may coordinate with national/state entities to verify ownership status and support start-up funds, avoiding undue administrative burden.
3) Impact on existing authorities and reporting (Sec. 1 and related)
- The SBI’s duties and powers are updated to include the new policy (11A.04, subsection 16) and to align with the emerging-diverse-start-up-franchise framework.
- The existing framework for reporting on private investment management costs and performance (e.g., private managers’ costs and annual performance reporting) remains, with added emphasis on the new policy and outcomes.
4) Related statutory changes
- The new policy is integrated into the SBI’s duties and is tied to 11A.238 and the annual reporting framework starting 2027.
- A new subdivision (Subd. 6a) to 11A.24 requires exercising investment authority consistent with the 11A.238 policy.
Who would be affected
- State investment programs and funds under SBI management or oversight.
- Emerging, diverse, start-up, and franchise investment managers seeking state engagement or capital.
- Start-up funds and small to mid-sized managers that may qualify for waivers or seed-stage commitments.
- Minnesota policymakers and pension/retirement stakeholders due to new annual reporting requirements.
Procedural and timeline aspects
- Effective adoption timeline: SBI must adopt the new policy by January 1, 2027 (Subd. 2(a)).
- Annual reporting: Starting July 1, 2027, and each year thereafter, SBI must publicly report on engagement, assets, performance, and outreach (Subd. 4).
- Ongoing: Policy updates are at SBI’s discretion; not subject to Administrative Procedure Act.
Potential impacts and considerations
- Diversification: Could broaden the range of managers managing state assets, potentially increasing competition and access for historically underrepresented groups.
- Risk management: Waivers and seed-stage commitments are allowed but require prudent standards and independent due diligence.
- Transparency: Enhanced reporting increases visibility into how state assets are allocated among newer and diverse managers.
- Administrative burden: Coordination with external entities is permitted but should avoid excessive administrative overhead.
Overall, HF 4953 seeks to institutionalize an explicit, outcome-focused approach to including diverse and emerging investment managers in Minnesota's state investments, while preserving prudent investment standards.
