BILL ANALYSIS                                                                                                                                                                                                    Ó






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                                   THIRD READING 


          Bill No:  AB 1052
          Author:   Cooley (D)
          Amended:  8/17/15 in Senate
          Vote:     21  

           SENATE PUBLIC EMP. & RET. COMMITTEE:  5-0, 7/13/15
           AYES:  Pan, Morrell, Beall, Fuller, Hall

           SENATE APPROPRIATIONS COMMITTEE:  Senate Rule 28.8

           ASSEMBLY FLOOR:  77-0, 5/7/15 - See last page for vote

           SUBJECT:   Retirement board authority: investments


          SOURCE:   California Public Employees' Retirement System
                    California State Teachers' Retirement System
          
          DIGEST:  This bill provides that the California State Teachers'  
          Retirement System (CalSTRS) and the California Public Employees'  
          Retirement System (CalPERS) may enter into investment related  
          contracts, as specified, under terms and conditions established  
          by their respective boards and consistent with their fiduciary  
          duties, notwithstanding any other law pertaining to state  
          contracting.

          ANALYSIS:
          
          Existing law:
          
          1)Establishes, under The California Pension Protection Act of  
            1992 (Proposition 162) which amended Article XVI, Section 17  
            of the State Constitution, that the retirement board of a  








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            public pension or retirement system has plenary authority and  
            fiduciary responsibility for investment of monies and  
            administration of the system.

          2)Provides that, except as otherwise restricted by the State  
            Constitution and by law, the boards may in their discretion  
            invest the assets of the respective funds through the  
            purchase, holding, or sale thereof of any investment,  
            financial instrument, or financial transaction when the  
            investment, financial instrument, or financial transaction is  
            prudent in the informed opinion of the board.

          3)Requires, based on provisions in the California Constitution,  
            that services provided by state agencies generally be  
            performed by state civil service employees.

          4)Restricts under state law, but does not prohibit, private  
            contracting by public agencies.  Public agencies are  
            authorized to engage in private contracting in various  
            instances, as specified.

          5)Establishes, under the Public Contract Code, a process that  
            state departments must follow and requirements, as specified,  
            that must be fulfilled to bid out and enter into service  
            contracts, including requirements for competitive bidding and  
            contractor certification of compliance with specified state  
            policies.

          6)Provides limited exceptions to the Public Contract Code, as  
            specified.

          This bill:

          1)Provides that, notwithstanding any other law pertaining to  
            state contracting, CalSTRS, in exercising its constitutional  
            discretion to invest fund assets, may contract for services  
            under terms and conditions and utilizing the processes the  
            boards deem necessary and consistent with its fiduciary  
            duties.

          2)Requires the processes utilized by CalSTRS to be competitive  
            except as allowed under existing law through specific  
            exemptions in the Public Contract Code (e.g., for an emergency  
            contract), as specified.







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          3)Provides, for CalSTRS, a new exemption to the requirement that  
            the contract process be competitive when there is an existing  
            contractual relationship with an investment manager that had  
            previously qualified as an emerging investment manager, as  
            defined by the board.  The bill requires that the CalSTRS  
            board monitor and assess contractors under this exemption in  
            accordance with all other provisions governing investment  
            managers generally and consistent with the boards' fiduciary  
            duties.

          4)Specifies that CalPERS, without compliance with any law, rule,  
            provision, or procedure pertaining to state contracting, may  
            enter into agreements, contracts, or other arrangements with a  
            bank or trust company for custodian and custodian related  
            services under the terms and conditions the CalPERS board  
            deems necessary and consistent with its fiduciary duties.  The  
            bill requires the process utilized to select a custodian to be  
            competitive except where a competitive bid or proposal is not  
            required under the Public Contract Code.

          5)Authorizes the CalPERS board, without compliance with any law,  
            rule, provision, or procedure pertaining to state contracting,  
            to enter into agreements, contracts, or other arrangements for  
            the providing of trade order management services under the  
            terms and conditions the board deems necessary and consistent  
            with its fiduciary duties.  In selecting an individual or  
            outside firm for trade order management services, the  
            processes utilized by the board shall be competitive except  
            where a competitive bid or proposal is not required under the  
            Public Contract Code.

          Background


          According to the co-sponsor CalSTRS, "As global markets become  
          more complex and the assets of California's state retirement  
          systems grow in size, the CalSTRS and CalPERS boards are  
          increasingly constrained by the traditional state procurement  
          requirements when contracting for investment expertise.   
          Authorizing the boards to set the terms and conditions for  
          procuring investment management services, thus eliminating the  
          opportunity costs that result from a diminished universe of  
          potential managers and from delays in the timely funding of  







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          asset allocations strategies, would significantly enhance the  
          boards' ability to successfully fulfil their fiduciary  
          obligations and secure the best value for our members."


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No


          SUPPORT:   (Verified8/18/15)


          California Public Employees' Retirement System (co-source)
          California State Teachers' Retirement System (co-source)


          OPPOSITION:   (Verified8/18/15)


          None received


          ARGUMENTS IN SUPPORT:     


          According to the co-sponsor CalPERS, this bill "would allow  
          CalPERS to streamline these very different contract evaluation  
          functions into a single integrated investment procurement  
          process and system.  CalPERS anticipates leveraging a  
          technological platform to gain, efficiencies, reduce  
          administrative expenditures, and ensure a robust control  
          environment is in place.  Additionally, the proposed contracting  
          process may allow for increased transparency, the more expedient  
          deployment of capital, and better alignment with CalPERS'  
          fiduciary obligations to its plan participants."

          ASSEMBLY FLOOR:  77-0, 5/7/15
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,  
            Bonilla, Bonta, Brough, Brown, Burke, Calderon, Chang, Chau,  
            Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly,  
            Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina  
            Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,  
            Gordon, Gray, Grove, Hadley, Harper, Holden, Irwin, Jones,  
            Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,  







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            Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,  
            Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,  
            Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark  
            Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams,  
            Wood, Atkins
          NO VOTE RECORDED:  Campos, Roger Hernández, Steinorth

          Prepared by:Glenn Miles / P.E. & R. / (916) 651-1519
          8/19/15 20:57:44


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