BILL NUMBER: SB 439 CHAPTERED
BILL TEXT
CHAPTER 258
FILED WITH SECRETARY OF STATE SEPTEMBER 22, 2005
APPROVED BY GOVERNOR SEPTEMBER 22, 2005
PASSED THE ASSEMBLY AUGUST 25, 2005
PASSED THE SENATE MAY 31, 2005
AMENDED IN SENATE MAY 23, 2005
AMENDED IN SENATE APRIL 4, 2005
INTRODUCED BY Senator Simitian
FEBRUARY 17, 2005
An act to add Section 6254.26 to the Government Code, relating to
public records.
LEGISLATIVE COUNSEL'S DIGEST
SB 439, Simitian Public records: disclosure: public investment
funds.
The California Public Records Act provides that, except for exempt
records, every state or local agency, upon request, shall make
records available to any person upon payment of fees to cover costs.
This bill would provide that, notwithstanding these provisions,
specified records regarding alternative investments, as defined, in
which public investment funds invest are not subject to disclosure
under these provisions, unless the information is already publicly
released by the keeper of the information. The bill would subject
specified information contained in these records regarding
alternative investments in which public investment funds invest to
public disclosure and would provide that the information is not to be
considered a trade secret exempt from disclosure.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares that Section 2 of
this act, which adds Section 6254.26 of the Government Code, imposes
a limitation on the public's right of access to the meetings of
public bodies or the writings of public officials and agencies within
the meaning of Section 3 of Article I of the California
Constitution. Pursuant to that constitutional provision, the
Legislature makes the following findings to demonstrate the interest
protected by this limitation and the need for protecting that
interest:
(a) Access to information concerning the conduct of the people's
business is a fundamental and necessary right of every person in this
state pursuant to subdivision (b) of Section 3 of Article I of the
California Constitution and Section 6250 of the Government Code. The
public has a paramount interest in knowing how public money is spent
and invested.
(b) Public pension and retirement systems and public endowments
and foundations have a fiduciary duty to invest the assets of these
funds with care, skill, prudence, and diligence. This fiduciary duty
includes diversifying the investment of assets in a manner so as to
minimize the risk of loss and maximize the rate of return. Investment
in high performing alternative investments is a component of
diversifying the pension assets and maximizing the rate of return.
(c) At the same time, a certain narrow class of public
investments, alternative investments, involves some information that
historically has been kept confidential because confidentiality is
essential to their success. The disclosure of certain information
pertaining to alternative investments could be harmful to generating
sustainable and profitable rates of return for the investments of the
pension or retirement system and of the public endowment or
foundation. Public pension systems desire to invest a portion of
their portfolio in alternative investments to boost return.
(d) Following recent litigation seeking to require public pension
funds and retirement systems and public endowments or foundations to
disclose certain information about alternative investments, the funds
risk being excluded from participation in certain alternative
investments. Exclusion from investing pension or retirement system
assets in alternative investments may impose substantial costs on
state public pension funds and the public employees who are their
beneficiaries.
(e) It is the intent of this legislation to balance the public's
right of access to information and the ability of public pension
funds to continue to invest in alternative investment funds. It is
also the intent of this legislation to allow the public to monitor
the performance of public investments; for public bodies to avoid
payment of excessive fees to private individuals or companies; and
for the public to be able to know the principals involved in
management of alternative investment funds in which public investment
funds have invested so that conflicts of interest on the part of
public officials can be avoided. This legislation is not intended to
reverse the general presumption of access and openness of the
California Public Records Act and subdivision (b) of Section 3 of
Article I of the California Constitution.
(f) It is not the intent of this legislation to overrule or
invalidate any court orders in or stipulated resolutions of prior
litigation relating to any public entity's obligation to disclose
information about its alternative investments to narrow the
information disclosed as a result of those decisions, or in any other
way to apply retroactively. It is, rather, the intent of this
legislation to establish predictability about what should and should
not be disclosed regarding private equity funds so that public
pension funds will be able to continue to invest in private equity
funds.
SEC. 2. Section 6254.26 is added to the Government Code, to read:
6254.26. (a) Notwithstanding any provision of this chapter or
other law, the following records regarding alternative investments in
which public investment funds invest shall not be subject to
disclosure pursuant to this chapter, unless the information has
already been publicly released by the keeper of the information:
(1) Due diligence materials that are proprietary to the public
investment fund or the alternative investment vehicle.
(2) Quarterly and annual financial statements of alternative
investment vehicles.
(3) Meeting materials of alternative investment vehicles.
(4) Records containing information regarding the portfolio
positions in which alternative investment funds invest.
(5) Capital call and distribution notices.
(6) Alternative investment agreements and all related documents.
(b) Notwithstanding subdivision (a), the following information
contained in records described in subdivision (a) regarding
alternative investments in which public investment funds invest shall
be subject to disclosure pursuant to this chapter and shall not be
considered a trade secret exempt from disclosure:
(1) The name, address, and vintage year of each alternative
investment vehicle.
(2) The dollar amount of the commitment made to each alternative
investment vehicle by the public investment fund since inception.
(3) The dollar amount of cash contributions made by the public
investment fund to each alternative investment vehicle since
inception.
(4) The dollar amount, on a fiscal yearend basis, of cash
distributions received by the public investment fund from each
alternative investment vehicle.
(5) The dollar amount, on a fiscal yearend basis, of cash
distributions received by the public investment fund plus remaining
value of partnership assets attributable to the public investment
fund's investment in each alternative investment vehicle.
(6) The net internal rate of return of each alternative investment
vehicle since inception.
(7) The investment multiple of each alternative investment vehicle
since inception.
(8) The dollar amount of the total management fees and costs paid
on an annual fiscal yearend basis, by the public investment fund to
each alternative investment vehicle.
(9) The dollar amount of cash profit received by public investment
funds from each alternative investment vehicle on a fiscal yearend
basis.
(c) For purposes of this section, the following definitions shall
apply:
(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 the public investment fund invests in portfolio
companies.
(3) "Portfolio positions" means individual portfolio investments
made by the alternative investment vehicles.
(4) "Public investment fund" means any public pension or
retirement system, and any public endowment or foundation.