BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  
                                                                 SB 294
                                                             Page  1

          Date of Hearing:   July 6, 2011

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                      SB 294 (Price) - As Amended:  May 9, 2011
                                           
          Policy Committee:                             PERSS Vote:4-1

          Urgency:     No                   State Mandated Local Program: 
          No     Reimbursable:              

           SUMMARY  

          This bill requires the California Public Employees' Retirement 
          System (CalPERS) and State Teachers Retirement System (CalSTRS) 
          to provide a five-year strategic plan for emerging investment 
          manager participation and to report to the Legislature annually 
          on the progress of the plan.  Specifically, this bill: 

          1)Requires the CalPERS and CalSTRS boards to each provide a 
            five-year strategic plan, beginning August 1, 2012, for 
            emerging investment manager participation across all asset 
            classes.

          2)Requires the CalPERS and CalSTRS boards to submit an annual 
            report to the Legislature, beginning March 1, 2014, and 
            annually thereafter, regarding the progress of the strategic 
            plan.

          3)Provides that nothing in this bill requires 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.

          4)Specifies the provisions of this bill remain in effect until 
            January 1, 2018, unless a later statute is enacted to delete 
            or extend that date.

           FISCAL EFFECT  

          The requirements of this bill are largely consistent with 
          efforts already underway at CalPERS and CalSTRS.  As a result, 
          according to CalSTRS, the administrative costs associated with 








                                                                  
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          this bill are minor and absorbable.  CalPERS estimates annual 
          administrative costs of $100,000.

           COMMENTS  

          1)  Purpose  .  According to the author, while both CalPERS and 
            CalSTRS have voluntarily adopted emerging manager programs as 
            a strategy to increase diversification, there is no existing 
            law that governs these programs.  The author states this bill 
            is intended 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.

           2)Background  .  California's two largest pension funds - CalPERS 
            and CalSTRS - have combined assets about $350 billion.  About 
            one-half of these assets are managed internally by investment 
            staff and the other half are placed with outside managers.  
            The two funds have been pursuing strategies to increase the 
            diversity of their investing managers recognizing the economic 
            value from a variety of investment approaches and methods.  

            According to information provided to the committee by CalPERS 
            and CalSTRS, both entities actively encourage participation by 
            minority-owned, women-owned and emerging investment management 
            firms, and use the services of specialist consultants in 
            diversity investments to further their outreach.  As an 
            example, CalPERS engages in research briefings, hosts outreach 
            events and participates in emerging manager and diversity 
            conferences nationwide.  The CalPERS Investment Officer for 
            Diversity provides another point of contact for emerging 
            managers, as does a web-based submission process that allows 
            money managers to present investment proposals directly to 
            Investment Office staff.

           3)Relevant legislation  .  AB 17 (Davis) requires the CalPERS 
            Board of Administration to annually report to the Legislature 
            on the ethnicity and gender of its external investment 
            managers and external firms that provide brokerage services.   
            It would also require the Board to develop and include in the 
            report plans and strategies to increase the participation of 
            emerging investment managers and emerging brokerage firms.

           4)Previous legislation  .   AB 1913 (Davis) and AB 1919 (Davis) 








                                                                  
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            both from last year, contained similar provisions to AB 17.  
            Both bills were held in the Senate Rules Committee.




           Analysis Prepared by  :    Roger Dunstan / APPR. / (916) 319-2081