BILL ANALYSIS Ó
AB 382
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Date of Hearing: May 8, 2013
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
AB 382 (Mullin) - As Amended: April 30, 2013
SUBJECT : State and local government: alternative investments:
public access.
SUMMARY : Amends the Ralph M. Brown Act to conform to
exemptions allowed under the Public Records Act for specified
information about alternative investments. Specifically, this
bill :
1)Allows a legislative body of a local agency that invests
pension funds to hold a closed session to consider information
about alternative investments that is exempt from disclosure
under the Public Records Act (PRA), as specified.
2)Provides that specified written information concerning
alternative investments shall be exempt from Ralph M. Brown
Act (Brown Act) requirements that writings, when distributed
to all, or a majority of all, of the members of a legislative
body of a local agency in connection with a matter subject to
discussion or consideration at an open meeting of the body
shall be made available upon request without delay.
3)Makes legislative findings and declarations regarding this
bill's limitation on the public's right of access to meetings
of public bodies or the writings of public officials and
agencies to demonstrate the interest protected by this
limitation and the need for protecting that interest, as
specified.
EXISTING LAW :
1)Exempts from disclosure, pursuant to the PRA, the following
records regarding alternative investments in which public
investment funds invest, unless the information has already
been publicly released by the keeper of the information:
a) Due diligence materials that are proprietary to the
public investment fund or the alternative investment
vehicle;
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b) Quarterly and annual financial statements of alternative
investment vehicles;
c) Meeting materials of alternative investment vehicles;
d) Records containing information regarding the portfolio
positions in which alternative investment funds invest;
e) Capital call and distribution notices; and,
f) Alternative investment agreements and all related
documents.
2)Defines "alternative investment" to mean an investment in a
private equity fund, venture fund, hedge fund, or absolute
return fund.
3)Allows, under the Brown Act, a legislative body of a local
agency that invests pension funds to hold a closed session to
consider the purchase or sale of particular, specific pension
fund investments. All investment transaction decisions made
during the closed session shall be made by roll-call vote
entered into the minutes of the closed session.
4)Provides that agendas of public meetings and any other
writings, when distributed to all, or a majority of all, of
the members of a legislative body of a local agency by any
person in connection with a matter subject to discussion or
consideration at an open meeting of the body, are disclosable
public records under the PRA and shall be made available upon
request without delay.
5)Exempts from the above disclosure requirement several types of
writings, including, among other things, preliminary drafts,
notes or interagency memoranda, records pertaining to pending
litigation against a public agency, personnel or medical
files, and other documents.
FISCAL EFFECT : None
COMMENTS :
1)This bill amends the Brown Act to conform to an exemption in
the Public Records Act, which protects from disclosure
specified information about alternative investments in which
public investment funds invest. This bill provides that this
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information can be considered in a closed session of a local
legislative body, and that the information is exempt from
Brown Act requirements that it be made available to the public
if it is distributed to members of a local legislative body
for discussion in an open meeting. This bill is sponsored by
the State Association of County Retirement Systems.
2)Alternative investments are defined in current law as
investments in a private equity fund, a venture fund, a hedge
fund, or an absolute return fund. These types of vehicles are
attractive to investors because they offer a higher yield than
more traditional investments.
3)According to the author, "While the Brown Act provides that
certain materials exempt from disclosure under the (PRA) are
also exempt from the Brown Act, the extensive list of
exemptions does not include (information) pertaining to
alternative investments. Therefore, despite the fact that
certain information pertaining to alternative investments is
exempt from the (PRA), if a local agency is making investment
decisions pertaining to alternative investments, the material
must be made available under the Brown Act and the (PRA)
exemption is eliminated."
4)The types of information related to alternative investments
that are now exempt from the PRA include capital call and
distribution notices, meeting materials, and portfolio
positions. Capital call and distribution notices are formal
requests from partners and outside managers identifying
specific assets and how much is being distributed to them.
Meeting materials are documents from meetings between
representatives of the retirement system and potential
sellers, buyers, partners, investors and others. These
documents could include strategies for each asset, plans for
maximizing value, risks impacting an asset, concerns about
competitors, and discussions that could culminate in sales,
investments or acquisitions. Portfolio positions are
documents that detail how much individuals or partnerships own
of specific investment vehicles.
5)SB 439 (Simitian), Chapter 258, Statutes of 2005, exempted
specified information related to alternative investments from
disclosure under the PRA. This provision was sought because
some venture capital firms and hedge funds were denying access
to their investments to institutions such as the University of
California (UC) because firms feared that sensitive financial
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information would be vulnerable to PRA disclosure. These
fears were founded on court actions against CalPERS and
against the Regents of the UC, in which litigants invoked the
PRA and the public's right to information about the
defendants' private equity investments. After the lawsuits
were filed, the state's public pension funds were excluded
from participation by some high performing investment funds.
The rationale that the investment firms gave to the pension
funds was that the PRA made the alternative investment funds
vulnerable to disclosure of highly confidential information.
SB 439 incorporated the settlement terms of those lawsuits.
6)According to the author's office, "the forced disclosure of
sensitive investment information can impede and hinder returns
for any investment fund. Under current law, county pension
funds have very limited ability to provide any assurance to
partners that they can keep sensitive business information
related to ongoing business confidential. In capital markets
this is a disadvantage. (SB 439) addressed this problem for
the state retirement systems and this bill does that for the
county retirement systems."
The author's office explains that under current law, county
pension funds that receive PRA requests must conduct a
detailed analysis to demonstrate that it is in the public
interest to withhold the information. This analysis can then
be challenged in court and result in costly and time-consuming
litigation. PRA and Brown Act requirements can cause private
equity managers and partners to avoid potential deals with
retirement systems.
The author's office notes that "the inability of public
pension funds to provide any assurance of confidentiality in
limited partnerships is always a sticking point in
negotiations and requires unique contractual arrangements
compared to pension funds' private competitors. Finally,
pension funds routinely receive (PRA) requests from
competitors as well as from companies who simply take pension
fund research, repackage it, and sell it. This (bill) would
protect alternative investments from these types of
activities."
7)Support arguments : Supporters contend that this bill corrects
inconsistencies between the PRA and the Brown Act and will
protect public pension funds' investments in alternative
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vehicles.
Opposition arguments : None
8)This bill was heard in the Judiciary Committee on April 23,
2013, where it was approved on a 9-1 vote.
REGISTERED SUPPORT / OPPOSITION :
Support
State Association of County Retirement Systems
Opposition
None on file
Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958