BILL ANALYSIS Ó
AB 2833
Page 1
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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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:
AB 2833
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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
AB 2833
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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