Bill Text: CA AB2833 | 2015-2016 | Regular Session | Chaptered
Bill Title: Public investment funds: disclosures.
Spectrum: Partisan Bill (Democrat 2-0)
Status: (Passed) 2016-09-14 - Chaptered by Secretary of State - Chapter 361, Statutes of 2016. [AB2833 Detail]
Download: California-2015-AB2833-Chaptered.html
BILL NUMBER: AB 2833 CHAPTERED
BILL TEXT
CHAPTER 361
FILED WITH SECRETARY OF STATE SEPTEMBER 14, 2016
APPROVED BY GOVERNOR SEPTEMBER 14, 2016
PASSED THE SENATE AUGUST 16, 2016
PASSED THE ASSEMBLY AUGUST 24, 2016
AMENDED IN SENATE JUNE 21, 2016
AMENDED IN ASSEMBLY APRIL 12, 2016
AMENDED IN ASSEMBLY MARCH 28, 2016
AMENDED IN ASSEMBLY MARCH 17, 2016
INTRODUCED BY Assembly Member Cooley
(Principal coauthor: Assembly Member Gatto)
FEBRUARY 19, 2016
An act to add Section 7514.7 to the Government Code, relating to
retirement.
LEGISLATIVE COUNSEL'S DIGEST
AB 2833, Cooley. Public investment funds: disclosures.
The California Constitution commits to the retirement board of a
public pension or retirement system plenary authority and fiduciary
responsibility for investment of moneys and administration of the
system. Existing law requires a retirement board to develop and
implement a policy requiring disclosure of payments to placement
agents, as defined, in connection with system investments in or
through external managers that includes prescribed elements. Existing
law requires disclosure of campaign contributions or gifts made by a
placement agent to any member of a public pension retirement board,
as specified. Existing law requires a public retirement system to
obtain an actuarial valuation of the system not less than triennially
and submit audited financial statements to the State Controller who
then publishes a report on the financial condition of public
retirement systems.
This bill, for new contracts entered into on and after January 1,
2017, and for existing contracts for which a new capital commitment
is made on or after January 1, 2017, would require a public
investment fund, as defined, to require alternative investment
vehicles, as defined, to make specified disclosures regarding fees,
expenses, and carried interest in connection with these vehicles and
the underlying investments, as well as other specified information.
Consistent with requirements relating to public records, the bill
would require a public investment fund to disclose the information
received in connection with alternative investment vehicles and the
gross and net rate of return of each alternative investment vehicle,
as specified, at least once annually at a meeting open to the public.
The bill would require a public investment fund to undertake
reasonable efforts to obtain the above-mentioned information for any
existing contract for which the public investment fund has not made a
new capital commitment on or after January 1, 2017. The bill would
make a statement of legislative intent. Because this bill would
impose new requirements on local entities relating to the collection
of information and its presentation at an open meeting, it would
impose a state-mandated local program.
The California Constitution requires local agencies, for the
purpose of ensuring public access to the meetings of public bodies
and the writings of public officials and agencies, to comply with a
statutory enactment that amends or enacts laws relating to public
records or open meetings and contains findings demonstrating that the
enactment furthers the constitutional requirements relating to this
purpose.
This bill would make legislative findings to that effect.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. It is the intent of the Legislature in enacting this
section to increase the transparency of fees paid by public
investment funds to alternative investment vehicles. Public
investment funds pay significant fees to alternative investment
vehicles and do not have sufficient information regarding the
character and amount of those fees. As fiduciaries, public investment
fund trustees have a duty to maximize investment returns in order to
ensure promised benefits are adequately funded and to minimize
taxpayer costs. Because fees paid to alternative investment vehicles
reduce returns, public investment fund trustees need to be able to
see and understand all of the fees they are charged.
SEC. 2. Section 7514.7 is added to the Government Code, to read:
7514.7. (a) Every public investment fund shall require each
alternative investment vehicle in which it invests to make the
following disclosures at least annually:
(1) The fees and expenses that the public investment fund pays
directly to the alternative investment vehicle, the fund manager, or
related parties.
(2) The public investment fund's pro rata share of fees and
expenses not included in paragraph (1) that are paid from the
alternative investment vehicle to the fund manager or related
parties. The public investment fund may independently calculate this
information based on information contractually required to be
provided by the alternative investment vehicle to the public
investment fund. If the public investment fund independently
calculates this information, then the alternative investment vehicle
shall not be required to provide the information identified in this
paragraph.
(3) The public investment fund's pro rata share of carried
interest distributed to the fund manager or related parties.
(4) The public investment fund's pro rata share of aggregate fees
and expenses paid by all of the portfolio companies held within the
alternative investment vehicle to the fund manager or related
parties.
(5) Any additional information described in subdivision (b) of
Section 6254.26.
(b) Every public investment fund shall disclose the information
provided pursuant to subdivision (a) at least once annually in a
report presented at a meeting open to the public. The public
investment fund's report required pursuant to this subdivision shall
also include the gross and net rate of return of each alternative
investment vehicle, since inception, in which the public investment
fund participates. The public investment fund may report the gross
and net rate of return and information required by subdivision (a)
based on its own calculations or based on calculations provided by
the alternative investment vehicle.
(c) For purposes of this section:
(1) "Alternative investment" means an investment in a private
equity fund, venture fund, hedge fund, or absolute return fund.
(2) "Alternative investment vehicle" means the limited
partnership, limited liability company, or similar legal structure
through which a public investment fund invests in an alternative
investment.
(3) "Fund manager" means the general partner, managing manager,
adviser, or other person or entity with primary investment
decisionmaking authority over an alternative investment vehicle and
related parties of the fund manager.
(4) "Carried interest" means any share of profits from an
alternative investment vehicle that is distributed to a fund manager,
general partner, or related parties, including allocations of
alternative investment vehicle profits received by a fund manager in
consideration of having waived fees that it might otherwise have been
entitled to receive.
(5) "Portfolio companies" means individual portfolio investments
made by the alternative investment vehicle.
(6) "Gross rate of return" means the internal rate of return for
the alternative investment vehicle prior to the reduction of fees and
expenses described in subdivision (a).
(7) "Public investment fund" means any fund of any public pension
or retirement system, including that of the University of California.
(8) "Operational person" means any operational partner, senior
advisor, or other consultant or employee whose primary activity for a
relevant entity is to provide operational or back office support to
any portfolio company of any alternative investment vehicle, account,
or fund managed by a related person.
(9) "Related person" means any current or former employee,
manager, or partner of any related entity that is involved in the
investment activities or accounting and valuation functions of the
relevant entity or any of their respective family members.
(10) "Related party" means:
(A) Any related person.
(B) Any operational person.
(C) Any entity more than 10 percent of the ownership of which is
held directly or indirectly, whether through other entities or
trusts, by a related person or operational person regardless if the
related person or operational person participates in the carried
interest received by the general partner or the special limited
partner.
(D) Any consulting, legal, or other service provider regularly
engaged by portfolio companies of an alternative investment vehicle,
account, or fund managed by a related person and that also provides
advice or services to any related person or relevant entity.
(11) "Relevant entity" means the general partner, any separate
carry vehicle, the investor advisor, any of the investment advisor's
parent or subsidiary entities, or any similar entity related to any
other alternative investment vehicle, account, or fund advised or
managed by any current or former related person.
(d) (1) This section shall apply to all new contracts the public
investment fund enters into on or after January 1, 2017, and to all
existing contracts pursuant to which the public investment fund makes
a new capital commitment on or after January 1, 2017.
(2) With respect to existing contracts not covered by paragraph
(1), the public investment fund shall undertake reasonable efforts to
obtain the information described in subdivision (a) and comply with
the reporting requirements contained in subdivision (b) with respect
to any information obtained after January 1, 2017.
SEC. 3. The Legislature finds and declares that Section 2 of this
act, which adds Section 7514.7 to the Government Code, furthers,
within the meaning of paragraph (7) of subdivision (b) of Section 3
of Article I of the California Constitution, the purposes of that
constitutional section as it relates to the right of public access to
the meetings of local public bodies or the writings of local public
officials and local agencies. Pursuant to paragraph (7) of
subdivision (b) of Section 3 of Article I of the California
Constitution, the Legislature makes the following findings:
The information in the disclosures required under subdivisions (a)
and (b) of Section 7514.7 of the Government Code is necessary to
ensure public confidence in the integrity of investments made by
retirement boards pursuant to alternative investment vehicles.
SEC. 4. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district under this act would result from a legislative mandate that
is within the scope of paragraph (7) of subdivision (b) of Section 3
of Article I of the California Constitution.
