North CarolinaHB 5062025-2026 SessionHouse

AN ACT TO ENACT THE 2025 STATE INVESTMENT MODERNIZATION ACT, AS RECOMMENDED BY THE STATE TREASURER.

Sponsored By: Brenden H. Jones (Republican), Kyle Hall (Republican), Stephen M. Ross (Republican), Steve Tyson (Republican)

Signed by Governor

APPOINTMENTSAUTHORITIESCOMMITTEESCONFIDENTIALITYCOUNCIL OF STATEFUNDS & ACCOUNTSGENERAL ASSEMBLYGOVERNORHIGHWAY TRUST FUNDINVESTMENT ADVISORY COMM

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Bill Overview

Analyzed Economic Effects

16 provisions identified: 5 benefits, 1 costs, 10 mixed.

Tax break for Authority property

Property owned by the Investment Authority is exempt from all State and local taxes. The Authority itself is not subject to State income tax. These exemptions do not apply to board members or employees.

Broader investments for state pensions

The law allows much greater use of real assets, real estate, and private equity for the Retirement Systems. Previous percentage caps on those specific strategies are removed. The combined cap on certain alternative assets rises from 35% to 80% of total pension assets. These allocations still must follow fiduciary standards and other statutory limits.

New state investment authority manages funds

This law creates the North Carolina Investment Authority to manage public investments. Starting January 1, 2026, it invests extra cash in the General Fund, Highway Fund, and Highway Trust Fund. It also takes over many special funds listed in law. More funds are now clearly covered, including university hospital and veterans funds. Local public bodies can deposit idle money with the Authority for investment under state rules.

Stricter pension risk and liquidity rules

The Retirement Systems must keep at least 20% of assets in core high‑quality investments. Illiquid investments may not exceed 40% of total assets. The Board checks liquidity each quarter and certifies illiquid allocations yearly. It can pause new illiquid commitments if cash needs are at risk. The CIO must keep the portfolio inside the Board’s approved risk range.

New and protected special trust funds

The law creates the Swain County Settlement Trust Fund with an initial $52 million balance, managed and invested by the Authority. It also places the Local Government Law Enforcement Special Separation Allowance Fund under Authority management. Contributions to that fund are irrevocable, shielded from contributors’ creditors, and used only to pay special separation benefits to eligible former local officers.

Help for supplemental retirement plans

The Supplemental Retirement Board can ask the Investment Authority to help monitor and report on state 401(k)‑style and deferred comp plans. The Authority must consent and follow a written policy. When it helps, it acts as a fiduciary for plan participants.

State shifts investing to new Authority

Beginning January 1, 2026, the State Treasurer deposits major state funds with the new Investment Authority to invest them. The Authority may pool funds or run them separately and has full power to buy, sell, lend, and reinvest. Each fund gets its own pro‑rata investment returns. The Treasurer stays custodian and makes payments only on vouchers signed by two designees of each fund’s board. The Authority must act solely for beneficiaries’ financial interests and weigh only economic factors. When choosing direct investing or outside managers, it must weigh expertise, alignment, transparency, risk controls, and costs.

Stronger oversight and public investment reports

The Treasurer and Authority must publish audited investment financial statements each year within six months. The Authority must explain risks, returns, and total fees versus benchmarks in a management discussion. It must post monthly performance and fee data for every investment, and deliver a detailed annual fee report to lawmakers. An outside expert reviews governance and operations every four years. If lawmakers broaden investment powers, the Authority must report results each year for at least four years. The CIO must present a full investment policy at least every two years for Board approval.

New fees and deposit minimums for funds

The Investment Authority can require minimum deposits and charge up to 0.15% per year in fees. The minimum is up to $100,000 for many funds, and up to $50,000 for charter schools. Affected groups include public and UNC hospitals, local OPEB trusts, law enforcement separation funds, decommissioning funds, Swain County’s trust, and conservation funds. Program costs may be shared and paid from program income and assets. Deposited money stays with the depositor and earns its share of returns.

Flexible hiring, pay, and background checks

Starting July 1, 2025, the Authority may pay market‑based salaries and performance bonuses to investment staff, based on an independent study and with annual reporting. It can hire specialized firms directly for investment work. Anyone who will access the Authority’s confidential health or financial data may face a criminal background check; refusing consent can mean no job or dismissal.

Board and CIO set strategy and pay

Beginning July 1, 2025, the Board approves investment policy, risk limits, a master custodian, annual budgets, and pay plans. The Board appoints a Chief Investment Officer with at least 15 years’ experience to run daily operations. The internal budget is capped at 3 basis points of the three‑year average assets (0.0003×), unless special cases apply. The Authority can use market‑based pay and exempt some investment roles from usual HR rules, with annual pay and bonus reporting.

Escheat Fund venture investing and audits

The law creates a Venture Capital Multiplier Fund using Escheat Fund assets. A third‑party manager runs it, and all costs are charged to that fund. The Escheat Fund can place up to 80% of assets in listed alternative investments. Each year by December 31, the Treasurer reports on claims, returns, appropriations, expenses, and the amount available for scholarships, loans, and grants.

Independent board, startup funding, and records

The Investment Authority operates independently of some state budget controls and has a five‑member board led by the State Treasurer, who breaks ties. Appointees must have at least 10 years of investment experience and meet ethics and conflict rules. Starting July 1, 2025, board members have limited civil‑liability protection when acting in good faith. The Treasurer’s funds may cover Authority startup costs through January 1, 2026. Existing Treasurer rules continue during 2025 until the Authority or the legislature changes them. During active deal talks, trade‑secret negotiation records are not public until negotiations end. The Board must adopt a code of ethics, gift and placement‑agent limits, and independent conflict checks.

New contracting and legal safeguards

Authority attorneys must review investment contracts for legal form and enforceability. The Authority may agree to indemnify, but only up to the amount it invested. Funds under the Authority are exempt from the usual state procurement and accounting rules in Chapter 143C. The Authority can skip exercising certain investment rights if that helps beneficiaries. It may invest in Sudan or South Sudan when U.S. rules allow, including through indexes, pooled funds, and derivatives.

Venture fund rules and safeguards

The Venture Capital Multiplier Fund may invest in the same asset types allowed for the Retirement Systems. A conflict policy must bar key people connected to the fund from taking paid work with companies the fund invested in for two years after their service ends.

When these changes start

Most parts of the law take effect June 13, 2025. Section 4.3(b) starts on July 1, 2025.

Sponsors & Cosponsors

Cosponsors

Jake Johnson
Republican • House
Jeffrey C. McNeely
Republican • House
Ray Pickett
Republican • House

Roll Call Votes

All Roll Calls

Yes: 303 • No: 3

House vote • 6/3/2025

HB 506: 2025 State Investment Modernization Act.

Yes: 113 • No: 0 • Other: 6

Senate vote • 5/22/2025

HB 506: 2025 State Investment Modernization Act.-AB

Yes: 40 • No: 0 • Other: 10