Senate bill positions Kansas to become nation’s HQ for alternative investment trusts

TOPEKA — Kansas could become a hub of a specialized investment trust that would allow for the state to put money into rural opportunity zones in exchange for a tax credit.

That’s the intent behind a bill that recently passed the Senate. The bill would establish an alternative investment trust framework and potentially fund rural economic development projects. 

Sen. Jeff Longbine, a Republican from Emporia, said the legislation would make it advantageous for an investment company to make Kansas a headquarters for alternative asset trusts. Should the bill move forward, incentives for companies that locate these trusts in Kansas include adjustments to state banking laws, business incorporation laws, the way the state will handle loans, and tax credits for the trusts.

Longbine said the bill puts pieces of laws of different states into one complete package. A trust would only have to have a location in Kansas to get all of the benefits of businesses that currently have affiliate offices across several states. 

“What this bill does is it sets up the framework for Kansas to become the headquarters in the United States for alternative investment trusts,” Longbine said. “So this legislation has pulled legislation from the state of Kansas, the state of Delaware, the state of South Dakota, Texas, and Wyoming, statutes from those states to incorporate Kansas to being friendly to these types of trusts.” 

The broad outline of the legislation is the idea that the state would charge a 2.5% fee on the trust. Trusts of this nature must have 2.5% in charitable giving each year to stay in compliance with federal law. This bill would allow the trusts to count that 2.5% fee for their charitable giving while the state places it into a rural economic zone through the Department of Commerce. 

Then the state would give the trust a tax credit that is an amount equal to the financial institution’s qualified charitable distributions during that year. The state will only grant the tax credit if the trust bank maintains a principal office in one of the state’s rural economic growth zones.

An alternative investment is a professionally managed investment asset that is not publicly traded. Examples in the bill include private equity, venture capital, leveraged buyouts, structured credit, private debt, private real estate funds and natural resources. Often they are items that are valuable but not liquid — Longbine used paintings and wine as examples.

The bill includes a six-month pilot program between Harvey County and Dallas-based Beneficient Co., an investment firm specializing in alternative trusts. Harvey County was selected because Beneficient Co. CEO Brad K. Heppner is from Hesston and his family still lives here. The pilot program is a way to give back to his hometown, Longbine said. 

Longbine said when the bill is passed into law, the company would deposit $1 million in the state treasury. Of that, 75% would go to the state banking commissioner to develop rules and regulations, while 25% would go to the Department of Commerce to develop the grant program.

Not everyone can invest in this type of trust. To put an asset into an alternative trust you must be what the SEC defines as a high net worth individual, meaning the investor would have to have a net worth of $5 million or more, excluding their principal residence. 

The bill passed the Senate but has not been voted on by the House. The legislation received bipartisan support in the Senate, and Longbine said Department of Commerce Secretary David Toland supports the bill. 

“This is a complicated topic,” said Sen. Jeff Pittman, a Democrat from Leavenworth. “And we will learn more over the next year going through this pilot program. I think that’s a wise move to understand any risk points that we haven’t uncovered in consultation with the banking commission, the bankers association, and our own introspection into this, but it does look to be an exciting opportunity to draw funds down from all over the country, through Kansas, and then to reap the benefits and charitable contributions, as well as cash balances for our banks.”