BILL ANALYSIS                                                                                                                                                                                                    



                                                                    AB 2833


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          Date of Hearing:  May 4, 2016


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                               Lorena Gonzalez, Chair


          AB  
          2833 (Cooley) - As Amended April 12, 2016


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          |Policy       |Public Employees,              |Vote:|7 - 0        |
          |Committee:   |Retirement/Soc Sec             |     |             |
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          |             |                               |     |             |
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          Urgency:  No  State Mandated Local Program:  YesReimbursable:   
          No


          SUMMARY:


          This bill requires public retirement systems to require  
          alternative investment vehicles in which they invest to annually  
          make various disclosures, as specified, and requires the public  
          retirement systems to disclose that information, along with  
          other specified information, at least annually in a report  
          presented at a public meeting.  Specifically, this bill:  













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          1)Defines the following terms:



             a)   "Alternative investment" means an investment in a  
               private equity fund, venture fund, hedge fund, or absolute  
               return fund and an "alternative investment vehicle" means  
               the limited partnership, limited liability company, or  
               similar legal structure through which a public pension or  
               retirement system invests in an alternative investment.  



             b)   "Fund manager" means the general partner, managing  
               manager, adviser, or other person with primary investment  
               decision making authority over an alternative investment  
               vehicle and related parties of the fund manager.  



             c)   "Carried interest" means any share of profits from an  
               alternative investment vehicle that is allocated to a fund  
               manager or general partner, including allocations of  
               profits received by a fund manager in consideration of  
               having waived fees that the fund manager might otherwise be  
               entitled to receive. 



             d)   "Portfolio positions" means individual portfolio  
               investments made by the alternative investment vehicle.  



          2)Requires every public pension or retirement system to require  
            each alternative investment vehicle in which it invests to  
            disclose specified fees, expenses, and the gross and net rate  
            of return associated with these vehicles and the underlying  
            investments on a form prescribed by the system. This applies  








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            to contracts entered into, extended, renewed, or amended after  
            January 1, 2017. 



          3)Requires every public pension or retirement system to disclose  
            the information received in connection with alternative  
            investment vehicles at least annually in a report presented at  
            a public meeting.  



          








          FISCAL EFFECT:





          Significant ongoing administrative costs to public retirement  
          systems, including California State Teachers Retirement System  
          (CalSTRs), California Public Employees' Retirement System  
          (CalPERS), and the University of California Retirement System  
          (UCRS), to update procedures and to collect data not already  
          being collected. Across these public retirement systems,  
          administrative costs are estimated to be in the range of  
          $800,000 annually.  


          









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          COMMENTS:


          1)Purpose. According to the sponsor, State Treasurer John  
            Chiang, AB 2833 will help public pension funds and their  
            trustees assess whether the management fees on alternative  
            investment vehicles, such as private equity funds, hedge  
            funds, and real estate investments, are justified. Supporters  
            of the bill argue that this will result in information in a  
            clear format that is transparent and can be understood in  
            comparison to other investments.  


          2)Alternative investments. 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 usually used by wealthy individuals and  
            institutions to employ aggressive strategies that are  
            unavailable to holders of mutual funds, including selling  
            short, leverage, program trading, swaps, arbitrage, and  
            derivatives.  


                      


          3)The California Public Records Act (CPRA). CPRA is designed to  
            provide the public access to information managed by all public  
            local and state agencies. Covered records include all  
            communications related to public business. Public agencies  
            must provide immediate access to information and aid in  
            identifying relevant information. Certain exemptions to the  
            CPRA exist, including court records, material covered by  
            attorney-client privilege, and certain police records. 



            CPRA also requires that public retirement systems disclose  








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            certain information about alternative investments if they have  
            it. This information includes fees and the rate of return.  
            However, supporters argue that current disclosure rules do not  
            require state retirement systems from retrieving this  
            information, which means that current disclosure requirements  
            have not resulted in sustained, consistent disclosures on the  
            hidden costs of these alternative investments. Moreover, other  
            types of fees and payment structures - such as carried  
            interest - are not subject to current disclosure rules. 





          Analysis Prepared by:Luke Reidenbach / APPR. / (916)  
          319-2081