BILL ANALYSIS �
AB 382
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 382 (Mullin)
As Amended June 19, 2013
Majority vote
-----------------------------------------------------------------
|ASSEMBLY: |67-2 |(May 16, 2013) |SENATE: |28-9 |(August 19, |
| | | | | |2013) |
-----------------------------------------------------------------
Original Committee Reference: JUD.
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)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).
2)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.
The Senate amendments delete some legislative findings, and
delete language that would have allowed 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.
FISCAL EFFECT : None
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
AB 382
Page 2
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.
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
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
AB 382
Page 3
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.
This bill seeks to harmonize exemptions for alternative
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
AB 382
Page 4
investments among the list of information and records that are
also exempt under the Brown Act as well as the PRA.
Recent amendments to the bill in the Senate narrow the scope of
the bill by deleting language seeking to allow 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. The
amendments also make a corresponding change to the legislative
findings in the bill that are no longer appropriate.
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334
FN: 0001379