BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                          SB 294 (Price)
          
          Hearing Date: 5/23/2011         Amended: 5/9/2011
          Consultant: Maureen Ortiz       Policy Vote: PE&R: 4-1
          
















































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          BILL SUMMARY:  SB 294 requires the CalPERS Board and the CalSTRS 
          board to provide a five-year strategic plan commencing August 1, 
          2012 and to report to the Legislature each year beginning March 
          1, 2014 regarding the progress of that plan. 
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          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2011-12      2012-13       2013-14     Fund
           
          Plan/report                                     $50              
            $100                 $100            Special*

          Plan/report                                  
          ----------------minor, absorbable-------------       Special**

          *Public Employees Retirement Fund       **Teachers Retirement 
          Fund
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          STAFF COMMENTS: 
          
          The boards of both retirement systems will be required to 
          provide a five-year strategic plan for emerging investment 
          manager participation across all asset classes.  Each board is 
          required to define the term "emerging investment manager" for 
          purposes of the report.  CalPERS indicates costs of $100,000 
          annually for the reporting requirement, and CalSTRS will have 
          minor costs.

          The CalPERS Board of Administration has already adopted several 
          policies and investment programs to diversify its investments 
          portfolio, which provides opportunities and resources for the 
          investment industry as a whole.  Through its private equity 
          program and California Initiative, which invests in underserved 
          communities throughout California, CalPERS has committed more 
          than $4 billion to firms with significant minority 
          participation.  In addition, CalPERS created a Management 
          Development Program over ten years ago to invest directly in 
          small and emerging funds in exchange for an equity stake.  In 
          2007, CalPERS also established a series of emerging manager 
          programs including hedge funds and private equity while 
          encouraging minority-owned and emerging money-management firms 








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          to participate in its research briefings and outreach events 
          held around the country.
           
          In January 2007, both CalPERS and CalSTRS unveiled an online 
          Emerging Managers and other Financial Service Provider (EMFSP) 
          database of more than 700 emerging  
          managers and financial service providers.  The database exposes 
          public and private pension funds and other institutional 
          investors to a new universe of emerging investment firms, and 
          creates an effort to boost investment returns by building 
          investment portfolios that tap into the changing demographics 
          and talent emerging in California and across the country.
           
          According to CalPERS and CalSTRS, the EMFSP database is intended 
          to capture the universe of emerging financial service firms, 
          create an industry reference guide, provide  
          information transparency, and broaden opportunities for adding 
          value to institutional investors' portfolios from a largely 
          untapped pool of talent.  It also gives plan sponsors, 
          corporations, endowments and institutional investors across the 
          nation exposure to a wide range of new investment options.
                       
          In 2001, the CalSTRS Board adopted the Policy on California 
          Investments.  The Policy on California Investments also 
          established a goal of investing 2% of CalSTRS assets in   
          underserved markets, primarily in California.  This action 
          attempted to eliminate the obstacles some sectors were having in 
          terms of access to capital and recognized the  
          importance of diverse investments.
           
          In February 2002, the Board's Investment Committee approved an 
          implementation plan for investing in underserved urban and rural 
          markets.  The plan called for hiring fund-of-fund managers with 
          independent decision-making authority who would work with 
          general partners.  It also incorporated a newly created New and 
          Next Generation Investment Program into the existing program for 
          Urban and Rural Investing, which had been guided by the Policy 
          on California Investments.
                     
          In August 2005, CalSTRS embarked on an approach to build a 
          strategy to incorporate diversity into the management of CalSTRS 
          investments. The Proactive Portfolio is a strategy that is 
          interwoven in all asset classes within CalSTRS' Portfolio, 








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          whereby a  
          framework is provided for selecting investments when the  
          investments are:  1) in the emerging space, and/or; 2) to 
          capture innovative strategies (i.e. new market opportunities 
          and/or new drivers of value creation due to changing 
          demographics, etc.), and/or; 3) investments consistent with the 
          Board's Policy on California Investments.
           
          On April 27, 2011, CalPERS announced that it had committed a 
          total of $400 million to three emerging managers in the pension 
          fund's Manager Development Program II (MDP II) for public equity 
          investment.
           
          CalPERS earmarked funds to companies that either specialize in 
          quantitative core strategies or provide assets and venture 
          capital to small and emerging public equity firms that have no 
          more than $2 billion of assets under management.
           
          Existing law requires CalPERS to annually report to the 
          Legislature on the investment performance of all external 
          investment managers, and the projected and actual fees paid to 
          them.  In addition, CalPERS voluntarily produces an annual 
          diversity report with key indicators in each of its specialized 
          investment programs and external diversity outreach efforts on 
          progress toward more diverse representation.  The report 
          includes data on participation in assets under management 
          reported by asset class for emerging investment managers and 
          diversity along gender, ethnicity, and disabled veterans status. 
           However, the information is gather through voluntary surveys of 
          these firms which are not compelled to participate in the 
          surveys.

          SB 294 provides that neither CalPERS nor CalSTRS will be 
          required to take action that is not consistent with their 
          fiduciary responsibilities.  The provisions of the bill will be 
          repealed January 1, 2018.