BILL ANALYSIS Ó
AB 382
Page 1
ASSEMBLY THIRD READING
AB 382 (Mullin)
As Amended April 30, 2013
Majority vote
JUDICIARY 9-1 LOCAL GOVERNMENT 8-0
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|Ayes:|Wieckowski, Wagner, |Ayes:|Achadjian, Levine, Alejo, |
| |Alejo, Chau, Dickinson, | |Bradford, Gordon, |
| |Garcia, Gorell, | |Melendez, Mullin, Rendon |
| |Muratsuchi, Stone | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Maienschein | | |
| | | | |
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SUMMARY : Amends the Ralph M. Brown Act (Brown Act) to include
information about alternative investments among the types of
information already exempted from the Brown Act. Specifically,
this bill :
1)Permits a legislative body of a local agency that invests
pension funds to hold a closed session to consider the
purchase or sale of alternative investments and related
information, as specified.
2)Provides that specified written information concerning
alternative investments shall be exempt from the general
requirement 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, are
disclosable public records under the California Public Records
Act (PRA).
3)Makes legislative findings and declarations that it is in the
public interest to ensure that disclosure requirements in the
Brown Act are consistent with those in the PRA. Restates a
number of additional legislative findings that were made when
Section 6254.26 was added to the Government Code, and finds
that they are applicable with equal force to this measure.
FISCAL EFFECT : None
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COMMENTS : County and statewide retirement systems invest in
alternative investment vehicles in their quest to achieve
profitability. According to the author, however, these pension
funds are at a distinct disadvantage in the marketplace because
many documents associated with alternative investments are
required to be publicly disclosed under the Brown Act - despite
the fact that the same business records are currently exempted
from disclosure under the PRA. This bill, sponsored by the
State Association of County Retirements Systems, seeks to
resolve this inconsistency by adding alternative investments to
the list of written records currently exempt from the Brown Act
if those records are part of a public hearing. In addition,
this bill also modestly expands the authority of retirement
boards to meet in closed session to discuss information relating
to alternative investments, as specified.
According to the author:
The purpose of this bill is to make public pension
systems more competitive in the marketplace. The
forced disclosure of alternative investments impedes
and hinders investment returns. For example, release
of investment research on a commercial property could
lead to investor speculation on that property, drive
up price, and limit return on investment. It also
makes retirement systems less desirable partners
because many documents associated with a business
transaction become public records.
It is in the public interest to avoid the disclosure
of sensitive information regarding alternative
investments because we need to ensure that pension
funds are as profitable as possible, otherwise
taxpayers could have to foot the bill for the
pension's unfunded liabilities. This bill basically
extends the same protections currently available to
CalPERS, CalSTRS, and UCERS under the Public Records
Act to County Retirement systems who are subject to
the Brown Act.
Under existing law, the term "alternative investment" refers to
an investment in a private equity fund, venture fund, hedge
fund, or absolute return fund. Venture capital is a source of
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financing for start-up companies that entails some investment
risk but offers the potential for above-average profits. A
hedge fund is commonly used by wealthy investors and
institutions to employ aggressive strategies that are
unavailable to holders of mutual funds, including selling short,
leverage, program trading, swaps, arbitrage, and derivatives.
Prior to 2005, there were reports that some venture capital
firms and hedge funds were denying access to their investments
to public institutions such as the University of California
because of the fear that sensitive financial information about
the funds was vulnerable because it could be obtained pursuant
to the PRA, requiring disclosure of public records unless
exempted. In addition, public pension funds were reportedly
getting sued to compel the disclosure of information related to
these highly profitable investments in venture capital funds,
hedge funds, and other alternative investments.
In response, the Legislature approved and the Governor signed SB
439 (Simitian), Chapter 258, Statutes of 2005, which established
that specified information related to alternative investments
would be exempt from disclosure under the PRA, so as to restore
some competitive advantage to public pension systems competing
in the marketplace.
According to the author, some examples of the types of
information related to alternative investments that are now
exempted 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--information that proponents contend
could lead to inflating the costs of potential investments.
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. Finally, portfolio positions are documents that
detail how much individuals or partnerships own of specific
investment vehicles.
First, the bill seeks to harmonize exemptions for alternative
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investment information between the Brown Act and the PRA.
Currently, the Brown Act generally requires that written
material that is part of a public hearing shall be part of the
public record and available for inspection, but it also exempts
from disclosure certain written materials that are already
exempt from disclosure under the PRA. Government Code Section
54957.5(a), part of the Brown Act, provides this extensive list
of exemptions by cross referencing numerous sections of the PRA
that identify various kinds of records exempted under the PRA.
However, alternative investments are not included among the
records specifically exempted by this section of the Brown Act.
Despite the fact that SB 439 made information concerning
alternative investments exempt from the PRA, proponents note
that if a local agency is making decisions relating to
alternative investments at a public meeting, the material must
still be made available under the Brown Act, thus effectively
negating the PRA exemption and making it moot. To address this,
this bill would amend the Brown Act to include alternative
investments among the list of information and records that are
also exempt under the Brown Act as well as the PRA.
In addition, this bill modestly expands the authority of
retirement boards to meet in closed session to discuss
information relating to alternative investments. Under the
Brown Act, a local board or agency may meet in closed session to
discuss the purchase or sale of pension fund investments. In
those cases, investment transaction decisions are recorded by
vote and are appropriately made public. According to the
author, however, retirement boards acting as limited partner
investors often meet to consider amendments and other
information related to partnership agreements after a "purchase"
of pension fund investments was already made in closed session.
Proponents contend that such amendments and information are also
very sensitive, and their disclosure could materially affect
investment return in the same manner as information related to
the original purchase, which is currently protected. To address
this, the bill seeks to clarify that a local agency that invests
pension funds may hold a closed session to simply consider
information related to alternative investments, rather than only
consideration of the purchase or sale of particular, specific
AB 382
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alternative investments.
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334
FN: 0000470