Bill Text: CA SB398 | 2011-2012 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Retirement: placement agents.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Passed) 2011-10-09 - Chaptered by Secretary of State. Chapter 704, Statutes of 2011. [SB398 Detail]

Download: California-2011-SB398-Amended.html

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BILL NUMBER: SB 398	AMENDED
	BILL TEXT

	AMENDED IN SENATE  MARCH 24, 2011

INTRODUCED BY   Senator Hernandez

                        FEBRUARY 16, 2011

   An act to amend Sections  7513.8 and 82025.3 
 7513.8, 7513.87, 82025.3, and 82047.3  of the Government
Code, relating to retirement  , and declaring the urgency
thereof, to take effect immediately  .



	LEGISLATIVE COUNSEL'S DIGEST


   SB 398, as amended, Hernandez. Retirement:  external
managers   placement agents  .
   Existing law regulates investments made by public pension and
retirement systems and defines the term "external manager" to mean a
person who is seeking to be, or is, retained by  the retirement
board of  a public  pension or  retirement system to
manage a portfolio of securities or other assets for compensation, or
a person who is engaged, or proposes to be engaged, in the business
of investing, reinvesting, owning, holding, or trading securities or
other assets and who offers or sells, or has offered or sold,
securities to a board.  Existing law also defines the term
"placement agent" to mean a person hired, engaged, or retained by, or
serving for the benefit of or on   behalf of, an external
manager, or on behalf of another placement agent, who acts or has
acted for compensation as a finder, solicitor, marketer, consultant,
broker, or other intermediary in connection with the offer or sale of
the securities, assets, or services of an external manager to a
board or an investment vehicle, as defined. The Political Reform Act
of 1974 defines those terms in a similar way for purposes of an
individual acting as a placement agent in connection with a state
public retirement system. 
   This bill would  make technical, nonsubstantive changes to
those provisions   instead define an external manager
to mean a person who is seeking to be, or is, retained by a board or
an investment vehicle to manage a portfolio of securities or other
assets for compensation,   or a person who manages an
investment fund, as defined, and who offers or sells, or has offered
or sold, an ownership interest in the investment fund to a board or
an investment vehicle. In addition, the bill would define a placement
agent to mean a person directly or indirectly hired, engaged, or
retained by, or serving for the benefit of or on behalf of, an
external manager or an investment fund managed by an external manager
and who acts or has acted for compensation as a finder, solicitor,
marketer, consultant, broker, or other intermediary in connection
with the offer or sale to a board or investment vehicle either the
investment management services of the external manager or an
ownership interest in an investment fund managed by the external
manager. The bill would make conforming changes in the definitions of
external manager and placement agent for purposes of the Political
Reform Act of 1974  . 
   Existing law requires a person acting as a placement agent in
connection with any potential system investment made by a local
public retirement system to file any applicable reports with a local
government agency that requires lobbyists to register and file
reports and to comply with any other applicable requirements imposed
by a local government agency, unless the person is an employee,
officer, director, equityholder, partner, member, or trustee of an
external manager who spends 1/3 or more of his or her time during a
calendar year managing the securities or assets owned, controlled,
invested, or held by the external manager.  
   This bill would also exempt a placement agent from any
requirements imposed by a local government agency if the placement
agent is an employee, officer, or director of an external manager, or
of an affiliate of an external manager, and the external manager is
registered as an investment adviser or a broker-dealer with the
Securities and Exchange Commission or any appropriate state
securities regulator; the external manager is participating in a
competitive bidding process, such as a request for proposals, or has
been selected through that process and is providing services pursuant
to a contract executed as a result of that competitive bidding
process; and the external manager, if selected through a competitive
bidding process, has agreed to a fiduciary standard of care, as
defined by the standards of conduct applicable to the retirement
board of a public pension or retirement system and set forth in the
California Constitution, when managing a portfolio of assets of a
public retirement system.  
   Existing law makes a knowing or willful violation of the Political
Reform Act of 1974 a misdemeanor and subjects offenders to criminal
penalties.  
   This bill would impose a state-mandated local program by creating
additional crimes.  
   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 Political Reform Act of 1974, an initiative measure, provides
that the Legislature may amend the act to further the act's purposes
upon a 2/3 vote of each house and compliance with specified
procedural requirements.  
   This bill would declare that it furthers the purposes of the act.
 
   This bill would declare that it is to take effect immediately as
an urgency statute. 
   Vote:  majority   2/3  . Appropriation:
no. Fiscal committee:  no   yes  .
State-mandated local program: no   yes  .


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

   SECTION 1.    Section 7513.8 of the  
Government Code   is amended to read: 
   7513.8.  As used in  this section and  Sections 7513.85,
7513.86, 7513.87, 7513.9, and 7513.95:
   (a) "Board" means the retirement board of a public pension or
retirement system, as defined in subdivision (h) of Section 17 of
Article XVI of the California Constitution.
   (b) "External manager" means either of the following:
   (1) A person who is seeking to be, or is, retained by a board 
or an investment vehicle  to manage a portfolio of securities
or other assets for compensation.
   (2) A person who  is engaged, or proposes to be engaged,
in the business of investing, reinvesting, owning, holding, or
trading securities or other assets   manages an
investment fund  and who offers or sells, or has offered or
sold,  securities   an ownership interest in the
investment fund  to a board  or an investment vehicle 
. 
   (c) (1) "Investment fund" means a private equity fund, public
equity fund, venture capital fund, hedge fund, fixed income fund,
real estate fund, infrastructure fund, or similar pooled investment
entity that is, or holds itself out as being, engaged primarily, or
proposes to engage primarily, in the business of investing,
reinvesting, owning, holding, or trading securities or other assets.
 
   (2) Notwithstanding paragraph (1), an investment company that is
registered with the Securities and Exchange Commission pursuant to
the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.) and
that makes a public offering of its securities is not an investment
fund.  
   (d) "Investment vehicle" means a corporation, partnership, limited
partnership, limited liability company, association, or other
entity, either domestic or foreign, managed by an external manager in
which a board is the majority investor and that is organized in
order to invest with, or retain the investment management services
of, other external managers.  
   (c) 
    (e)  "Person" means an individual, corporation,
partnership, limited partnership, limited liability company, or
association, either domestic or foreign. 
   (d) 
    (f)  (1) "Placement agent" means any person 
directly or indirectly  hired, engaged, or retained by, or
serving for the benefit of or on behalf of, an external manager
 , or on behalf of another placement agent,   or
an investment fund managed by an external manager, and  who
acts or has acted for compensation as a finder, solicitor, marketer,
consultant, broker, or other intermediary in connection with the
offer or sale  of the securities, assets, or services of an
external manager  to a board or an investment vehicle
 , either directly or indirectly.   either of
the following:  
   (A) In the case of an external manager within the meaning of
paragraph (1) of subdivision (b), the investment management services
of the external manager.  
   (B) In the case of an external manager within the meaning of
paragraph (2) of subdivision (b), an ownership interest in an
investment fund managed by the external manager. 
   (2) Notwithstanding paragraph (1), an individual who is an
employee, officer, director, equityholder, partner, member, or
trustee of an external manager and who spends one-third or more of
his or her time, during a calendar year, managing the securities or
assets owned, controlled, invested, or held by the external manager
is not a placement agent. 
   (3) For purposes of this subdivision, "investment vehicle" means a
corporation, partnership, limited partnership, limited liability
company, association, or other entity, either domestic or foreign,
constituting or managed by an external manager in which a board is
the majority investor and that is organized in order to invest with,
or retain the investment management services of, other external
managers. 
   SEC. 2.    Section 7513.87 of t   he 
 Government Code   is amended to read: 
   7513.87.  (a) A person acting as a placement agent in connection
with any potential system investment made by a local public
retirement system shall file any applicable reports with a local
government agency that requires lobbyists to register and file
reports and shall comply with any applicable requirements imposed by
a local government agency pursuant to Section 81013.
   (b) This section does not apply to  an  
either of the following: 
    (1)     An  individual who is an
employee, officer, director, equityholder, partner, member, or
trustee of an external manager who spends one-third or more of his or
her time, during a calendar year, managing the securities or assets
owned, controlled, invested, or held by the external manager. 
   (2) An employee, officer, or director of an external manager, or
of an affiliate of an external manager, if all of the following
apply:  
   (A) The external manager is registered as an investment adviser or
a broker-dealer with the Securities and Exchange Commission or, if
exempt from or not subject to registration with the Securities and
Exchange Commission, any appropriate state securities regulator.
 
   (B) The external manager is participating in a competitive bidding
process, such as a request for proposals, or has been selected
through that process and is providing services pursuant to a contract
executed as a result of that competitive bidding process.  

   (C) The external manager, if selected through a competitive
bidding process described in subparagraph (B), has agreed to a
fiduciary standard of care, as defined by the standards of conduct
applicable to the retirement board of a public pension or retirement
system and set forth in Section 17 of Article XVI of the California
Constitution, when managing a portfolio of assets of a public
retirement system in California. 
   SEC. 3.    Section 82025.3 of the  
Government Code   is amended to read: 
   82025.3.   (a)    "External manager" means
either of the following:
   (1) A person who is seeking to be, or is, retained by a state
public retirement system in California  or an investment vehicle
 to manage a portfolio of securities or other assets for
compensation.
   (2) A person who  is engaged, or proposes to be engaged,
in the business of investing, reinvesting, owning, holding, or
trading securities or other assets   manages an
investment fund  and who offers or sells, or has offered or
sold,  securities   an ownership interest in the
investment fund  to a state public retirement system in
California  or an investment vehicle  . 
   (b) For purposes of this section, "investment fund" has the same
meaning as set forth in Section 7513.8.  
   (c) For purposes of this section, "investment vehicle" has the
same meaning as set forth in Section 82047.3. 
   SEC. 4.    Section 82047.3 of the  
Government Code   is amended to read: 
   82047.3.  (a) "Placement agent" means an individual  directly
or indirectly  hired, engaged, or retained by, or serving for
the benefit of or on behalf of, an external manager  , or on
behalf of another placement agent,   or an investment
fund managed by an external manager, and  who acts or has acted
for compensation as a finder, solicitor, marketer, consultant,
broker, or other intermediary in connection with the offer or sale
 of the securities, assets, or services of an external
manager  to a state public retirement system in California
or an investment vehicle  , either directly or indirectly.
  either of the following:  
   (1) In the case of an external manager within the meaning of
paragraph (1) of subdivision (a) of Section 82025.3, the investment
management services of the external manager.  
   (2) In the case of an external manager within the meaning of
paragraph (2) of subdivision (a) of Section 82025.3, an ownership
interest in an investment fund managed by the external manager. 

   (b) Notwithstanding subdivision (a), an individual who is an
employee, officer, director, equityholder, partner, member, or
trustee of an external manager and who spends one-third or more of
his or her time, during a calendar year, managing the securities or
assets owned, controlled, invested, or held by the external manager
is not a placement agent.
   (c) Notwithstanding subdivision (a), an employee, officer, or
director of an external manager, or of an affiliate of an external
manager, is not a placement agent  with respect to an offer or
sale of investment management services described in subdivision (a)
 if all of the following apply:
   (1) The external manager is registered as an investment adviser or
a broker-dealer with the Securities and Exchange Commission or, if
exempt from or not subject to registration with the Securities and
Exchange Commission, any appropriate state securities regulator.
   (2) The external manager  has been selected through
  is participating in  a competitive bidding
process  , such as a request for proposals,  subject to
subdivision (a) of Section 22364 of the Education Code or subdivision
(a) of Section 20153 of this code, as applicable,  or has been
selected through that process,  and is providing services
pursuant to a contract executed as a result of that competitive
bidding process.
   (3) The external manager  , if selected through a competitive
bidding process described in paragraph (2),  has agreed to a
fiduciary standard of care, as defined by the standards of conduct
applicable to the retirement board of a public pension or retirement
system and set forth in Section 17 of Article XVI of the California
Constitution, when managing a portfolio of assets of a state public
retirement system in California. 
   (d) For purposes of this section, "investment fund" has the same
meaning as set forth in Section 7513.8.  
   (d) 
    (e)  For purposes of this section, "investment vehicle"
means a corporation, partnership, limited partnership, limited
liability company, association, or other entity, either domestic or
foreign,  constituting or  managed by an external
manager in which a state public retirement system in California is
the majority investor and that is organized in order to invest with,
or retain the investment management services of, other external
managers.
   SEC. 5.    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 will be incurred because this act creates a
new crime or infraction, eliminates a crime or infraction, or
changes the penalty for a crime or infraction, within the meaning of
Section 17556 of the Government Code, or changes the definition of a
crime within the meaning of Section 6 of Article XIII B of the
California Constitution. 
   SEC. 6.    The Legislature finds and declares that
this bill furthers the purposes of the Political Reform Act of 1974
within the meaning of subdivision (a) of Section 81012 of the
Government Code. 
   SEC. 7.    This act is an urgency statute necessary
for the immediate preservation of the public peace, health, or safety
within the meaning of Article IV of the Constitution and shall go
into immediate effect. The facts constituting the necessity are:
 
   In order to ensure that public pension and retirement systems do
not suffer disruptions in their investment transactions that would
result in immediate and significant economic losses to the state and
local government agencies, it is necessary that this act take effect
immediately.  
  SECTION 1.    Section 7513.8 of the Government
Code is amended to read:
   7513.8.  As used in Sections 7513.85, 7513.86, 7513.87, 7513.9,
and 7513.95:
   (a) "Board" means the retirement board of a public pension or
retirement system, as defined in subdivision (h) of Section 17 of
Article XVI of the California Constitution.
   (b) "External manager" means either of the following:
   (1) A person who is seeking to be, or is, retained by a board to
manage a portfolio of securities or other assets for compensation.
   (2) A person who is engaged, or proposes to be engaged, in the
business of investing, reinvesting, owning, holding, or trading
securities or other assets, and who offers or sells, or has offered
or sold, securities to a board.
   (c) "Person" means an individual, corporation, partnership,
limited partnership, limited liability company, or association,
either domestic or foreign.
   (d) (1) "Placement agent" means any person hired, engaged, or
retained by, or serving for the benefit of or on behalf of, an
external manager, or on behalf of another placement agent, who acts
or has acted for compensation as a finder, solicitor, marketer,
consultant, broker, or other intermediary in connection with the
offer or sale of the securities, assets, or services of an external
manager to a board or an investment vehicle, either directly or
indirectly.
   (2) Notwithstanding paragraph (1), an individual who is an
employee, officer, director, equityholder, partner, member, or
trustee of an external manager and who spends one-third or more of
his or her time, during a calendar year, managing the securities or
assets owned, controlled, invested, or held by the external manager
is not a placement agent.
   (3) For purposes of this subdivision, "investment vehicle" means a
corporation, partnership, limited partnership, limited liability
company, association, or other entity, either domestic or foreign,
constituting or managed by an external manager in which a board is
the majority investor and that is organized in order to invest with,
or retain the investment management services of, other external
managers.  
  SEC. 2.    Section 82025.3 of the Government Code
is amended to read:
   82025.3.  "External manager" means either of the following:
   (1) A person who is seeking to be, or is, retained by a state
public retirement system in California to manage a portfolio of
securities or other assets for compensation.
   (2) A person who is engaged, or proposes to be engaged, in the
business of investing, reinvesting, owning, holding, or trading
securities or other assets, and who offers or sells, or has offered
or sold, securities to a state public retirement system in
California.