Amended in Assembly March 17, 2016

California Legislature—2015–16 Regular Session

Assembly BillNo. 2833


Introduced by Assembly Member Cooley

February 19, 2016


An act to add Section 7514.7 to the Government Code, relating to retirement.

LEGISLATIVE COUNSEL’S DIGEST

AB 2833, as amended, Cooley. Publicbegin delete retirement: pensionend deletebegin insert retirement systems:end insert funds: disclosures.

The California Constitution commits to the retirement board of a public pension or retirement system plenary authority and fiduciary responsibility for investment of moneys and administration of the system. Existing law requires a retirement board to develop and implement a policy requiring disclosure of payments to placement agents, as defined, in connection with system investments in or through external managers that includes prescribed elements. Existing law requires disclosure of campaign contributions or gifts made by a placement agent to any member of a public pension retirement board, as specified. Existing law requires a public retirement system to obtain an actuarial valuation of the system not less than triennially and submit audited financial statements to the State Controller who then publishes a report on the financial condition of public retirement systems.

This bill, for contracts entered into on and after January 1, 2017, would require a public pension or retirementbegin delete systemend deletebegin insert system, including that of the University of California,end insert to requirebegin delete private equity fund managers, partnerships, portfolio companies, and affiliatesend deletebegin insert alternative investment vehicles, as defined,end insert to make specified disclosures regardingbegin delete fees and expensesend deletebegin insert fees, expenses, and gross rate of returnend insert in connection withbegin delete limited partner agreementsend deletebegin insert these vehicles and the underlying investmentsend insert on a form prescribed by the system. Consistent with requirements relating to public records, the bill would require a public pension or retirementbegin delete systemend deletebegin insert system, including that of the University of California,end insert to disclose the information received in connection withbegin delete the limited partner agreementsend deletebegin insert alternative investment vehicles, with other specified information,end insert at least once annually at a meeting open to the public. The bill would make a statement of legislative intent. Because this bill would impose new requirements on local entities relating to the collection of information and its presentation at an open meeting, it would impose a state-mandated local program.

The California Constitution requires local agencies, for the purpose of ensuring public access to the meetings of public bodies and the writings of public officials and agencies, to comply with a statutory enactment that amends or enacts laws relating to public records or open meetings and contains findings demonstrating that the enactment furthers the constitutional requirements relating to this purpose.

This bill would make legislative findings to that effect.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

It is the intent of the Legislature in enacting this
2section to increase the transparency of fees paid by public pension
3funds tobegin delete private equity general partners.end deletebegin insert alternative investment
4vehicles.end insert
Pension funds pay significant fees tobegin delete private equity firmsend deletebegin insert end insert
5begin insertalternative investment vehiclesend insert and do not have sufficient
6information regarding the character and amount of those fees. As
7fiduciaries, public fund trustees have a duty to maximize
8investment returns in order to ensure promised benefits are
9adequately funded and to minimize taxpayer costs. Because fees
10paid tobegin delete private equity general partnersend deletebegin insert end insertbegin insertalternative investment
P3    1vehiclesend insert
reduce returns, public fund trustees need to be able to see
2and understand all of the fees they are charged.

3

SEC. 2.  

Section 7514.7 is added to the Government Code, to
4read:

5

7514.7.  

(a) Every public pension or retirementbegin delete systemend deletebegin insert system,
6including that of the University of California,end insert
shall requirebegin delete its
7private equity fund managers, partnerships, portfolio companies,
8and affiliatesend delete
begin insert each alternative investment vehicle in which it investsend insert
9 to make the following disclosures, on a form prescribed by the
10begin delete system, in regard to each limited partner agreement:end deletebegin insert system:end insert

11(1) Thebegin insert annualend insert fees and expenses that the retirement system
12pays directly to thebegin delete private equity fund managers and partnerships
13subject to the agreement.end delete
begin insert alternative investment vehicle.end insert

14(2) Thebegin insert annualend insert fees and expenses not included in paragraph (1)
15that are paid from thebegin delete private equity fund,end deletebegin insert alternative investment,end insert
16 including carried interest, to thebegin delete private equity fund general partners
17and affiliates.end delete
begin insert alternative investment vehicle.end insert

18(3) Thebegin insert annualend insert fees and expenses paid bybegin delete the private equity
19portfolio companies to the private equity fund general partners
20and affiliates.end delete
begin insert the portfolio companies held within the alternative
21investment to the alternative investment vehicle.end insert

begin insert

22(4) The gross rate of return of each alternative investment
23vehicle since inception.

end insert

24(b) begin deleteConsistent with the requirements of Section 6254.26, a end deletebegin insertEvery end insert
25public pension or retirementbegin delete systemend deletebegin insert system, including that of the
26University of California,end insert
shall disclosebegin delete the information received
27pursuant to subdivision (a)end delete
begin insert the followingend insert at least once annually at
28a meeting open to thebegin delete public.end deletebegin insert public:end insert

begin insert

29(1) The information received pursuant to subdivision (a). The
30disclosure of this information shall be consistent with the
31restrictions described in subdivision (a) of Section 6254.26.

end insert
begin insert

32(2) The information described in subdivision (b) of Section
336254.26.

end insert

34(c) For purposes of thisbegin delete section, the following definitions shall
35apply:end delete
begin insert section:end insert

begin insert

36(1) “Alternative investment” means an investment in a private
37equity fund, venture fund, hedge fund, or absolute return fund.

end insert
begin insert

38(2) “Alternative investment vehicle” means the limited
39partnership, limited liability company, or similar legal structure
P4    1through which the state or local public pension or retirement
2system invests in an alternative investment.

end insert
begin delete

3(1)

end delete

4begin insert(3)end insert “Carried interest” means a share of the profits ofbegin delete a private
5equity fundend delete
begin insert an alternative investment vehicleend insert that is due tobegin delete theend deletebegin insert aend insert
6 fund manager or general partner.

begin delete

7(2)

end delete
begin delete


8“Private equity” means an asset class consisting of equity
9securities and debt in operating companies that are not publicly
10traded on a stock exchange.

end delete

11(d) This section shall apply to contracts the system entered into,
12extended, renewed, or amended on or after January 1, 2017.

13

SEC. 3.  

The Legislature finds and declares that Section 1 of
14this act, which adds Section 7514.7 to the Government Code,
15furthers, within the meaning of paragraph (7) of subdivision (b)
16of Section 3 of Article I of the California Constitution, the purposes
17of that constitutional section as it relates to the right of public
18access to the meetings of local public bodies or the writings of
19local public officials and local agencies. Pursuant to paragraph (7)
20of subdivision (b) of Section 3 of Article I of the California
21Constitution, the Legislature makes the following findings:

22The information in the disclosures required under subdivisions
23(a) and (b) of Section 7514.7 of the Government Codebegin delete areend deletebegin insert isend insert
24 necessary to ensure public confidence in the integrity of
25 investments made by retirement boards pursuant tobegin delete limited partner
26agreements.end delete
begin insert alternative investment vehicles.end insert

27

SEC. 4.  

No reimbursement is required by this act pursuant to
28Section 6 of Article XIII B of the California Constitution because
29the only costs that may be incurred by a local agency or school
30district under this act would result from a legislative mandate that
31is within the scope of paragraph (7) of subdivision (b) of Section
323 of Article I of the California Constitution.



O

    98