Amends TCA Title 35, Chapter 10.

STANDARD OF CONDUCT IN MANAGING AND INVESTING AN INSTITUTIONAL FUND Present law establishes the standard of conduct in managing and investing an institutional fund as follows: (1) Subject to the intent of a donor expressed in a gift instrument, an institution, in managing and investing an institutional fund, must consider the charitable purposes of the institution and the purposes of the institutional fund; (2) In addition to complying with the duty of loyalty imposed by law other than the Uniform Prudent Management of Institutional Funds Act of which this provision is a part, each person responsible for managing and investing an institutional fund must manage and invest the fund in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances; (3) In managing and investing an institutional fund, an institution (i) may incur only costs that are appropriate and reasonable in relation to the assets, the purposes of the institution, and the skills available to the institution and (ii) must make a reasonable effort to verify facts relevant to the management and investment of the fund; (4) An institution may pool two or more institutional funds for purposes of management and investment; and (5) Except as otherwise provided by a gift instrument, the following rules apply: (A) In managing and investing an institutional fund, the following factors, if relevant, must be considered: (i) general economic conditions; (ii) the possible effect of inflation or deflation; (iii) the expected tax consequences, if any, of investment decisions or strategies; (iv) the role that each investment or course of action plays within the overall investment portfolio of the fund; (v) the expected total return from income and the appreciation of investments; (vi) other resources of the institution; (vii) the needs of the institution and the fund to make distributions and to preserve capital; and (viii) an asset's special relationship or special value, if any, to the charitable purposes of the institution; (B) Management and investment decisions about an individual asset must be made not in isolation but rather in the context of the institutional fund's portfolio of investments as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the fund and to the institution; (C) Except as otherwise provided by law other than the Uniform Prudent Management of Institutional Funds Act, an institution may invest in any kind of property or type of investment consistent with the standard of conduct described in these provisions; (D) An institution must diversify the investments of an institutional fund unless the institution reasonably determines that, because of special circumstances, the purposes of the fund are better served without diversification; (E) Within a reasonable time after receiving property, an institution must make and carry out decisions concerning the retention or disposition of the property or to rebalance a portfolio, in order to bring the institutional fund into compliance with the purposes, terms, distribution requirements, and other circumstances of the institution and the requirements of the Uniform Prudent Management of Institutional Funds Act; and (F) A person that has special skills or expertise, or is selected in reliance upon the person's representation that the person has special skills or expertise, has a duty to use those skills or that expertise in managing and investing institutional funds. PROHIBITED ACTIONS This bill prohibits an institution, including public institutions of higher education, and except as provided under the heading "Further Exception to Prohibited Actions," below, from doing the following: (1) Considering any of the goals listed in (2)(i)-(iv) below with regard to a possible investment by the institutional fund, or selection of a service provider, or the voting of shares by the institutional fund, except to the extent required to comply with (2) below; or (2) Selecting a service provider that has a purpose or ambition for its customers, investment portfolio, or a portfolio company, or has joined or participates in an initiative or organization that has a purpose or ambition for its signatories' or members' customers, investment portfolios, or portfolio companies, to be aligned with any of the following goals beyond what is required by law: (i) directly or indirectly eliminating, reducing, offsetting, or disclosing reduction targets for greenhouse gas emissions; (ii) instituting corporate board or employment composition targets or criteria that incorporate characteristics protected under state law relative to human rights; (iii) reducing the amount of business conducted with an entity, for the purpose of advancing any of the foregoing goals; or (iv) advancing the purposes of an international agreement related to any of the foregoing goals. EXCEPTIONS TO PROHIBITIONS Under this bill, (2) under the heading "Prohibited Actions" does not apply in the event that the institution determines that (2) under the heading "Prohibited Actions" would require the selection of a service provider that would have a materially negative financial impact on the fund, as long as the institution complies with the following requirements: (1) Contracts with the service provider that most closely meets the requirements of (2) under the heading "Prohibited Actions" and would not have a materially negative financial impact on the fund; (2) Documents its determination, along with evidence supporting its determination, including a description of the services of at least three alternative service providers consulted that includes a description of fees, historical investment performance, and compliance with (2) under the heading "Prohibited Actions"; (3) Includes such documentation and evidence in its minutes or other publicly available medium; (4) Publicly posts notices seeking a service provider that would comply with (2) under the heading "Prohibited Actions," (i) no later than 60 days after the selection of a service provider that does not meet the requirements of (2) under the heading "Prohibited Actions"; (ii) no later than 60 days before the beginning of any following procurement period under which that service provider could be replaced; and (iii) as part of any following procurement announcement under which that service provider could be replaced; and (5) Limits the contract duration to no more than a year and re-evaluates its determination at least annually pursuant to (1)-(4) above under this heading. FURTHER EXCEPTION TO PROHIBITED ACTIONS This bill establishes that the provisions under the heading "Prohibited Actions" above do not apply to the investment and management of specific gifts where the intent of a donor was contrary to those provisions and was expressed in the gift instrument prior to the effective date of this act. For purposes of this bill, an "institution” means (i) an entity organized and operated exclusively for charitable purposes; (ii) a government or governmental subdivision, agency, or instrumentality, to the extent that it holds funds exclusively for a charitable purpose; and (iii) a trust that had both charitable and noncharitable interests, after all noncharitable interests have terminated.