BILL ANALYSIS Ó
AB 1052
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
1052 (Cooley)
As Amended August 17, 2015
Majority vote
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|ASSEMBLY: | 77-0 | (May 7, 2015) |SENATE: |38-0 | (August 27, |
| | | | | |2015) |
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Original Committee Reference: P.E., R., & S.S.
SUMMARY: Allows the California Public Employees' Retirement
System (CalPERS) and the California State Teachers' Retirement
System (CalSTRS) to enter into contracts for investment related
services under the terms and conditions established by their
respective boards and consistent with their fiduciary duties
rather than under the state contracting requirements.
Specifically, this bill:
1)Provides that, notwithstanding any other law pertaining to
state contracting, CalSTRS and CalPERS, in exercising their
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 their
fiduciary duties.
2)Requires the processes utilized by CalSTRS and CalPERS to be
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competitive except when allowed under existing law through
specific exemptions in the Public Contract Code (e.g., for an
emergency contract), as specified.
3)Provides an exemption for CalSTRS 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 CalSTRS monitor
and assess contractors under this exemption in accordance with
all other provisions governing investment managers generally
and consistent with the board's fiduciary duties.
4)Authorizes the CalPERS board 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, as specified.
The Senate amendments:
1)Require the contract process utilized by CalPERS and CalSTRS
to be competitive, as specified.
2)Create an exemption for CalSTRS from the requirement that the
contract process be competitive for emerging investment
managers, as specified.
3)Specifically authorize the CalPERS board to contract for trade
order management services under the terms and conditions
deemed necessary by the board, as specified.
4)Make other technical and clarifying changes.
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EXISTING LAW:
1)Provides, as established by The California Pension Protection
Act of 1992 (Proposition 162) which amended State Constitution
Article XVI, Section 17, that the retirement board of a public
pension or retirement system has plenary authority and
fiduciary responsibility for investment of monies and
administration of the system.
2)Requires, based on provisions in the California Constitution,
that services provided by state agencies generally be
performed by state civil service employees.
3)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.
FISCAL EFFECT: Unknown. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS: Most of California's state agencies, including
CalSTRS and CalPERS, must abide by state contracting
requirements. In recognition of the unique nature of the
services required of certain government agencies, often out of
the need for expediency, the Legislature has granted specific
exemptions from state competitive bidding requirements. For
example, the California Housing Finance Agency and the
California Health Benefit Exchange Board have been granted
blanket exemptions. In addition, CalPERS is exempt from
competitive bidding requirements when contracting with health
plans and long-term care insurance plans. General exemptions
also apply for any state agency when obtaining expert witnesses,
or for contracts for legal defense, legal advice or legal
services or the development, maintenance, administration or use
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of licensing or proficiency testing examinations.
According to CalSTRS, "The overall purpose of the competitive
bidding requirements set forth in the Public Contract Code is to
stimulate competition conducive to sound fiscal practices;
protect the public from the misuse of public funds; and guard
against favoritism, fraud and corruption. As fiduciaries, the
CalSTRS and CalPERS boards are bound by standards set forth in
the California State Constitution and federal law to invest plan
assets in a manner that is solely in the interest of members and
beneficiaries. These strict standards require fiduciaries to
discharge duties with care, skill, prudence and diligence at a
level that goes beyond the goals of competitive bidding
requirements.
"In addition to competitive bidding, state law requires that
contractors certify compliance with a myriad of
California-specific statutes and regulations, some of which
require certification prior to even being considered. Many of
these certifications are entirely inapplicable to the highly
specialized nature of investment management. As a result, firms
that desire to compete for a contract must allocate the
necessary time and resources to decipher contract laws when
their expertise is and should be more centered on the management
of investments.
"As a consequence, oftentimes smaller emerging manager firms
that do not employ the extensive marketing staff of larger firms
cannot afford to allocate critical investment staff capacity to
compete for these contracts. These disincentives to compete
reduce the universe of potential manager firms with which to
contract. This can prevent CalSTRS and CalPERS from being able
to invest timely in certain hard-to-reach sectors of the
marketplace, thus resulting in opportunity costs to the funds."
The author states, "Consistent with existing authority set forth
in the California State Constitution, AB 1052 authorizes the
CalSTRS and CalPERS boards to set the terms and conditions for
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procuring investment management services, thus eliminating the
opportunity costs that result in a diminished universe of
potential investment manager firms and from delays in the timely
funding of asset allocation strategies. This authorization will
enhance the boards' ability to secure the best value for members
and beneficiaries and successfully fulfill their fiduciary
obligations."
Analysis Prepared by:
Karon Green / P.E.,R., & S.S. / (916) 319-3957
FN:
0001355