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ARIZONA STATE SENATE
Fifty-Seventh Legislature, First Regular Session
China; public funds; divestment
Purpose
Prohibits publicly managed funds from holding certain investments in the People's Republic of China or in companies owned or controlled by, or domiciled within, the People's Republic of China or other specified Chinese entities. Requires publicly managed funds to immediately divest from the prohibited companies, with exceptions.
Background
The State Board of Investment must adopt a policy for the purpose of identifying countries currently designated as state sponsors of terrorism by the U.S. Department of State. The policy must include: 1) the procedure to identify companies in violation of the federal Export Administration Act; 2) the process for communicating its findings with the companies and appropriate federal officials; and 3) the process for divestment from the companies in violation. The State Treasurer, the Arizona State Retirement System Board and the Public Safety Personnel Retirement System Board of Trustees must divest from the identified companies. The State Treasurer must notify the Governor, President of the Senate, Speaker of the House of Representatives and the Arizona Department of Administration of any divestments and the reasons for the divestments (A.R.S. ยง 35-392).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
1. Prohibits a publicly managed fund from holding an investment in:
a) the People's Republic of China;
b) a company owned by the People's Republic of China;
c) a company domiciled, incorporated or headquartered within the People's Republic of China;
d) a company controlled by the People's Republic of China Government, the Chinese Communist Party, the Chinese military or any instrumentality of the People's Republic of China Government, the Chinese Communist Party or the Chinese military; or
e) a company that is majority-owned by an entity controlled by the People's Republic of China Government, the Chinese Communist Party, the Chinese military or any instrumentality of the People's Republic of China Government, the Chinese Communist Party or the Chinese military.
2. Specifies that the prohibition does not apply to a company solely because the company has a subsidiary or affiliate described in the prohibition.
3. Requires a publicly managed fund to immediately begin divestment of any prohibited holdings or investments and complete total divestment as soon as financially prudent, but before one year.
4. Requires each publicly managed fund, in order to identify the prohibited holdings and investments, to:
a) review publicly available information regarding the companies and investments;
b) contact contracted asset managers and fund managers that invest in companies and in funds that are owned or domiciled in China or whose primary affairs are conducted in China;
c) contact institutional investors that have divested from or engaged with companies that are owned by or domiciled in China or whose primary affairs are conducted in China; or
d) retain an independent research firm to identify companies that are direct or indirect investment holdings of the fund and that are owned by or domiciled in China or whose primary affairs are conducted in China.
5. Exempts, from the requirement to divest, a publicly managed fund whose holdings or investments in Chinese companies is less than one percent of the fund's total holdings or investments and the divestment cost over the next five years is more than one percent of the fund's total holdings or investments.
6. Specifies that with respect to any divestment actions a publicly managed fund is:
a) exempt from any conflicting statutory or common law obligation or fiduciary duties with respect to choice of asset managers, investment funds or investments;
b) subject to statutes governing actions against public entities or public employees regarding immunity for acts and omissions; and
c) indemnified and held harmless by the state from claims, demands, suits, actions, damages, judgments, costs, charges and expenses, including attorney fees, and against all liability, losses and damages because of a decision to sell, redeem, divest or withdraw holdings of a restricted company.
7. Specifies that the divestment requirements and investment prohibition do not inhibit, conflict with, impede or otherwise interfere with any required financial safeguards, fiduciary requirements or other sound investment criteria to which a publicly managed fund is subject.
8. Defines publicly managed fund as a short-term or long-term investment structure that is managed, run, controlled or otherwise overseen by the state or a political subdivision.
9. Applies the divestment requirements and investment prohibition to any private equity or venture capital investments entered into or renewed from and after the general effective date.
10. Contains a severability statement.
11. Contains a purpose statement.
12. Defines terms.
13. Becomes effective on the general effective date.
Prepared by Senate Research
January 29, 2025
MG/ci