BILL ANALYSIS Ó
SENATE COMMITTEE ON EDUCATION
Senator Carol Liu, Chair
2015 - 2016 Regular
Bill No: SB 574
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|Author: |Pan |
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|Version: |April 22, 2015 Hearing |
| |Date: April 29, 2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Kathleen Chavira |
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Subject: University of California: alternative investment
information
SUMMARY
This bill requires the University of California (UC) to obtain
specified information from each private equity fund, venture
fund, hedge fund, or absolute return fund in which the UC
provides or has provided funds for investment.
BACKGROUND
Existing law defines "alternative investment" as an investment
in a private equity fund, venture fund, hedge fund, or absolute
return fund.
Existing law exempts specified records regarding alternative
investments in which public investment funds are invested from
disclosure, unless the information has already been publicly
released by the keeper of the information. Information exempted
from disclosure includes due diligence materials that are
proprietary, quarterly and annual financial statements, meeting
materials, records containing information regarding the
portfolio positions in which alternative investment funds
invest, capital call and distribution notices, and alternative
investment agreements and all related documents.
Existing law requires disclosure of specified information
regarding alternative investments. These required disclosures
include the following:
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1. The name, address, and vintage year of each alternative
investment vehicle.
2. The dollar amount of the commitment made to each
alternative investment vehicle by the public investment
fund since inception.
3. The dollar amount of cash contributions made by the
public investment fund to each alternative investment
vehicle since inception.
4. The dollar amount, on a fiscal year-end basis, of cash
distributions received by the public investment fund from
each alternative investment vehicle.
5. The dollar amount, on a fiscal year-end 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.
6. The net internal rate of return of each alternative
investment vehicle since inception.
7. The investment multiple of each alternative investment
vehicle since inception.
8. The dollar amount of the total management fees and costs
paid on an annual fiscal year-end basis, by the public
investment fund to each alternative investment vehicle.
9. The dollar amount of cash profit received by public
investment funds from each alternative investment vehicle
on a fiscal year-end basis.
(Government Code § 6254.26)
Existing law, the California Public Records Act (CPRA) governs
the disclosure of information collected and maintained by public
agencies. Generally, all public records are accessible to the
public upon request, unless the record requested is exempt from
public disclosure. There are 30 general categories of documents
or information that are exempt from disclosure, essentially due
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to the character of the information. Unless it is shown that
the public's interest in disclosure outweighs the public's
interest in non-disclosure of the information, the exempt
information may be withheld by the public agency that has
custody of the information.
Existing law defines state agency, for purposes of the CPRA, to
include every state officer, department, division, bureau,
board, and commission or other state body or agency, except for
the Legislature and the Judiciary. The California State
University, the University of California, and the California
Community Colleges are considered to be state agencies for this
purpose. (Government Code § 6250, et. al.)
ANALYSIS
This bill requires the University of California to obtain the
information required to be disclosed under specified Government
Code provisions (§ 6254.26) from each private equity fund,
venture fund, hedge fund, or absolute return fund in which the
UC provides, or has provided, funds for investment.
STAFF COMMENTS
1. Need for the bill. Under the California Public Records
Act, specified information about alternative investments
must be disclosed if public funds are used for investment.
According to the author, the courts recently ruled that the
UC Regents are allowed to refrain from obtaining this
information from the two largest venture capital partners
with whom the UC invests. As a result, the UC Regents can
avoid the disclosure requirements which would otherwise
apply since they cannot disclose information which they do
not possess.
According to the author, the UC has invested over $239 million
in 10 venture capital funds. This bill would require the UC to
obtain the specified information and allow Californians and UC
employees to track the performance of investments on which their
pensions rely. This bill is sponsored by the California
Newspaper Publishers Association.
2. Related Court Cases. This bill is intended to respond to a
ruling by the California Court of Appeals in Regents of the
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University of California v. Superior Court (2013) 222 Cal.
App. 4th 383, appealing the decision of the Superior Court
for Alameda County in regards to a request by Reuters
America LLC for specific financial information from the UC
Regents pertaining to their investments in specified funds.
The court noted that the primary issue in the case was whether a
public agency can be required under the California Public
Records Act (Government Code § 6250, et. seq.) to seek records
it does not prepare, own, use or retain in the conduct of its
business.
The Superior Court found that the Regents were required to use
"objectively reasonable efforts" to obtain individual fund
information for the Regent's current investments from Kleiner
Perkins Caulfield & Byers (Kleiner Perkins) and Sequoia Capital
(Sequoia) even though the Regents had not prepared, owned, used,
or retained this fund information. However, this ruling was
overturned by the appeals court which found that, because the
information was not prepared, owned, used, or retained by the
Regents, records reflecting such information in the hands of
Kleiner Perkins and Sequoia were not "public records" within the
meaning of the California Public Records Act.
3. History. Court documents noted that as of October 2012,
the Regents owned investment assets of about $71.6 billion
which help pay for employee pensions, student scholarships,
research, and other university operations. Since 1979,
about 2 percent of the Regent's multi-billion dollar
investment portfolio has been invested in "private equity;"
limited partnerships formed and managed by private parties
to invest in private companies.
Until 2003, the Regents did receive information from the private
equity firms that allowed it to monitor its private equity
investments. In 2003, however, in response to a claim by the
Coalition of University Employees, the Alameda County Superior
Court ruled that this information was subject to disclosure
under the California Public Records Act. A UC Regents petition
to seek review of that decision by an appeals court was denied.
Following this decision, the two private equity firms that were
the subject of the 2013 court case, Kleiner Perkins and Sequoia,
stopped providing fund specific information and stopped inviting
the Regents to participate in new funds. It appears that
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Sequoia did allow the Regents to invest in private equity funds
again beginning in 2010.
SUPPORT
American Federation of State, County and Municipal Employees,
AFL-CIO
California Newspaper Publishers Association, CNPA Services, Inc.
OPPOSITION
University of California
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