BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 294|
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THIRD READING
Bill No: SB 294
Author: Price (D)
Amended: 5/9/11
Vote: 21
SEN. PUBLIC EMPLOYMENT & RETIREMENT COMM. : 4-1, 5/2/11
AYES: Negrete McLeod, Gaines, Padilla, Vargas
NOES: Walters
SENATE APPROPRIATIONS COMMITTEE : 6-3, 5/23/11
AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
NOES: Walters, Emmerson, Runner
SUBJECT : Public employees retirement: emerging
investment
managers
SOURCE : Author
DIGEST : This bill requires the Board of Administrations
for the California Public Employees Retirement System and
the California State Teachers Retirement System to provide
a five-year strategic for emerging investment manager
participation on the progress of the plan, and annual
reports submitted to the Legislature, as specified.
ANALYSIS :
Existing Law
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1.Creates the California Public Employees' Retirement
System (CalPERS) and the California State Teachers'
Retirement System (CalSTRS).
2.Vests the Boards of Administration for CalPERS and
CalSTRS with management and executive control of the
administration and investment of the retirement fund.
3.Pursuant to the California Pension Protection Act of 1992
(Proposition 162) passed by voters, provides that the
boards of California's public retirement systems have
"plenary authority and fiduciary responsibility for
investment of monies and administration of the system."
4.Under Proposition 162, the Legislature also retained its
authority to, by statute, "continue to prohibit certain
investments by a retirement board where it is in the
public interest to do so, and provided that the
prohibition satisfies the standards of fiduciary care and
loyalty required of a retirement board pursuant to this
section."
5.Pursuant to the State Constitution, states "The members
of the retirement board of a public pension or retirement
system shall discharge their duties with respect to the
system solely in the interest of, and for the exclusive
purposes of providing benefit to, participants and their
beneficiaries, minimizing employer contributions thereto,
and defraying reasonable expenses of administering the
system."
6.Pursuant to Proposition 209 passed by the voters in 1996
and which amended the California Constitution to state,
"The state shall not discriminate against, or grant
preferential treatment to, any individual or group on the
basis of race, sex, color, ethnicity, or national origin
in the operation of public employment, public education,
or public contracting."
This bill:
1.Requires the CalPERS and CalSTRS boards each to provide a
five-year strategic plan, beginning August 1, 2012, for
emerging investment manager participation across all
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asset classes.
2.Requires the CalPERS and CalSTRS boards to submit an
annual report to the Legislature, beginning March 1,
2014, with benchmarks regarding the progress of the
strategic plan.
3.Permits the CalPERS and CalSTRS boards to define the term
"emerging investment manager".
4.Provides that nothing in this bill shall require the
boards to take action that is not consistent with the
fiduciary responsibilities of the board as described in
Section 17 of Article XVI of the California Constitution.
5.Specifies that the provisions of this bill remain in
effect until January 1, 2018, unless a later statute is
enacted to delete or extend that date.
6.Requires printed reports to be submitted to both
Legislative Counsel and Secretary of the Senate, as
specified, and electronic copies to the Chief Clerk of
the Assembly and to each Member of the Legislature, and a
notice of the reports in the Journal of the Assembly or
Senate, as specified.
Comments
CalPERS' Diversity and Investment Policies, Reporting and
Emerging Manger Efforts. The CalPERS Board of
Administration has adopted several polciies and investment
programs to diversity 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 to participate in its
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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
Provicer (EMFSP) database of more than 700 emerging
managers and financial service providers towards exposing
public and private pension funds and other institutional
investors to a new universe of emerging investment firms,
and in 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.
CalSTRS Diversity and Investment Policies, Reporting and
Emerging Manager Efforts . In 2001, the CalSTRS board
adopted the Policy on California Investments. The Policy
on California Investments also established a goal of
investing two percent 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-for-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.
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In August 2005, CalSTRS embarked on an approach to build a
strategy to incorporate diversity into the management of
CalSTRS investment.
The Proactive Portfolio is a strategy that is interwoven in
all asset classes within CalSTRs' Portfolio, 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., demographics, etc.),
and/or (3) investments consistent with the Board's Policy
on California Investments.
CalPERS Announces $400 Million Commitment to Emerging
Managers . 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 provides assets and
venture capital to small and emerging public equity firms
that have no more than $2 billion of assets under
management.
According to Joseph Dear, CalPERS' Chief Investment
Officer, CalPERS, "These emerging managers will play an
important role in our effort to nurture potential diverse
major players in the financial markets."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
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
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**Teachers Retirement Fund
SUPPORT : (Verified 5/24/11)
California Public Employees' Retirement System
the California State Teachers' Retirement System
ARGUMENTS IN SUPPORT : According to the author's office,
"While both entities have voluntarily adopted emerging
manager programs as a strategy to increase diversification,
there is no existing law that governs these programs. This
bill is to encourage expanded opportunities for newer and
smaller investment companies in the state procurement of
financial services, including the management of assets
managed by the state's public pension funds."
CPM:cm 5/24/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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