BILL ANALYSIS Ó
AB 2833
Page 1
ASSEMBLY THIRD READING
AB
2833 (Cooley)
As Amended April 12, 2016
Majority vote
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Public |7-0 |Bonta, Waldron, | |
|Employees | |Cooley, Cooper, | |
| | |Cristina Garcia, | |
| | |O'Donnell, Wagner | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |20-0 |Gonzalez, Bigelow, | |
| | |Bloom, Bonilla, | |
| | |Bonta, Calderon, | |
| | |Chang, Daly, Eggman, | |
| | |Gallagher, Eduardo | |
| | |Garcia, Roger | |
| | |Hernández, Holden, | |
| | |Jones, Obernolte, | |
| | |Quirk, Santiago, | |
| | |Wagner, Weber, Wood | |
| | | | |
| | | | |
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AB 2833
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SUMMARY: Requires every public retirement system, including the
University of California Retirement System (UCRS), 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:
1)Expresses the intent of the legislature to increase the
transparency of fees paid by public pension funds to
alternative investment vehicles. Because fees paid to
alternative investment vehicles reduce returns, public fund
trustees need to see and understand all fees that are changed.
2)Requires every public pension or retirement system, including
the UCRS, 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.
3)Requires every public pension or retirement system, including
the UCRS, to disclose the information received in connection
with alternative investment vehicles at least annually in a
report presented at a public meeting.
4)Defines the following terms:
a) "Alternative investment" means an investment in a
private equity fund, venture fund, hedge fund, or absolute
return fund.
b) "Alternative investment vehicle" means the limited
partnership, limited liability company, or similar legal
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structure through which a public pension or retirement
system invests in an alternative investment.
c) "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.
d) "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.
e) "Portfolio positions" means individual portfolio
investments made by the alternative investment vehicle.
5)Contains legislative findings and declarations stating that
the information and disclosures required by this bill are
necessary to ensure public confidence in the integrity of
investments made by retirement boards pursuant to alternative
investments.
6)Specifies that no reimbursement for a state mandated cost is
required by this act because the only cost that may be
incurred by a local agency or school district under this act
would result from a state mandate that is within the scope of
provisions in the California Constitution that require local
agencies to comply with a statutory enactment that is related
to public records or open meetings, as specified.
EXISTING LAW:
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1)Pursuant to Government Code Section 6254.26(b), the following
information regarding alternative investments in which public
investment funds invest are subject to disclosure:
a) The name, address, and vintage year of each alternative
investment vehicle;
b) The dollar amount of the commitment made to each
alternative investment vehicle by the public investment
fund since inception;
c) The dollar amount of cash contributions made by the
public investment fund to each alternative investment
vehicle since inception;
d) The dollar amount, on a fiscal yearend basis, of cash
distributions received by the public investment fund from
each alternative investment vehicle;
e) The dollar amount, on a fiscal yearend basis, of cash
distributions received by the public investment fund plus
remaining value of partnership assets attributable to the
public investment fund's investment in each alternative
investment vehicle;
f) The net internal rate of return of each alternative
investment vehicle since inception;
g) The investment multiple of each alternative investment
vehicle since inception;
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h) The dollar amount of the total management fees and costs
paid on an annual fiscal yearend basis, by the public
investment fund to each alternative investment vehicle;
and,
i) The dollar amount of cash profit received by public
investment funds from each alternative investment vehicle
on a fiscal year-end basis.
2)Pursuant to Government Code Section 6254.26(a), the following
records regarding alternative investments in which public
investment funds invest are not subject to disclosure, unless
the information has already been publicly released by the
keeper of the information:
a) Due diligence materials that are proprietary to the
public investment fund or the alternative investment
vehicle;
b) Quarterly and annual financial statements of alternative
investment vehicles;
c) Meeting materials of alternative investment vehicles;
d) Records containing information regarding the portfolio
positions in which alternative investment funds invest;
e) Capital call and distribution notices; and,
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f) Alternative investment agreements and all related
documents.
FISCAL EFFECT: According to the Assembly Appropriations
Committee, "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."
COMMENTS: In June 2003, the Alameda County Superior Court,
citing the California Public Records Act (CPRA), required the
University of California (UC) to reveal information regarding
individual venture-capital partnerships. In 2005, in response
to concerns that this disclosure would lead to some funds
discontinuing partnership with UC, SB 439 (Simitian), Chapter
258, Statutes of 2005, established Government Code 6254.26 to
require the public disclosure of some information regarding
investment performance, but to protect the confidentiality of
some proprietary information.
According to the author, "Administration of California's pension
funds carries with it a fiduciary responsibility to act
exclusively for the plan's participants. This is a moving
standard as financial markets evolve and the resulting
complexity of investments increase. This bill's requirement for
more systematic disclosure of affected fees and charges will
ensure that, as fiduciaries, plan administrators will have this
information in a clear format that is both transparent but which
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can also be understood in comparison to other investments. This
more assertive disclosure coupled with comparison will advance
the fiduciary duties of these plans."
The author concludes, "All public pension plans are funded by
employee contributions and taxpayer dollars. These funds pay
significant fees to their alternative investment general
partners but lack sufficient insight into the amount and nature
of those fees. The investment portfolios of California's public
pension plans require certain levels of returns to fund
constitutionally guaranteed benefits for government workers.
Both management and carried interest payments to general
partners decrease the net returns on the portfolio. If net
returns of the portfolio are reported to pension plans without
specific disclosure of the amount of fees paid to general
partners, public pension plans and the public have no means of
assessing whether the amount of compensation paid to private
equity managers or hedge fund managers is appropriate."
Analysis Prepared by:
Karon Green / P.E.,R., & S.S. / (916) 319-3957
FN:
0003120
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