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 SB 294 Page 2 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) SB 294 Page 3 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