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.