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

NOTE: There are more recent revisions of this legislation. Read Latest Draft
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-Enrolled.html
BILL NUMBER: SB 398	ENROLLED
	BILL TEXT

	PASSED THE SENATE  MAY 23, 2011
	PASSED THE ASSEMBLY  AUGUST 25, 2011
	AMENDED IN SENATE  MARCH 24, 2011

INTRODUCED BY   Senator Hernandez

                        FEBRUARY 16, 2011

   An act to amend Sections 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, Hernandez. Retirement: 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 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.



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 manages an investment fund and who offers or
sells, or has offered or sold, 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.
   (e) "Person" means an individual, corporation, partnership,
limited partnership, limited liability company, or association,
either domestic or foreign.
   (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 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 an
investment vehicle 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.
  SEC. 2.  Section 7513.87 of the 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 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 manages an investment fund and who offers or
sells, or has offered or sold, 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 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 state
public retirement system in California or an investment vehicle
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 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.
   (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,
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.
          
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