BILL ANALYSIS Ó
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 574|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: SB 574
Author: Pan (D)
Amended: 4/22/15
Vote: 21
SENATE EDUCATION COMMITTEE: 7-0, 4/29/15
AYES: Liu, Block, Hancock, Leyva, Mendoza, Monning, Pan
NO VOTE RECORDED: Runner, Vidak
SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/28/15
AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen
SUBJECT: University of California: alternative investment
information
SOURCE: California Newspaper Publishers Association
DIGEST: 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.
ANALYSIS:
Existing law:
1)Defines "alternative investment" as an investment in a private
equity fund, venture fund, hedge fund, or absolute return
fund.
2)Exempts specified records regarding alternative investments in
SB 574
Page 2
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.
3)Requires disclosure of specified information regarding
alternative investments. These required disclosures include
the following:
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 year-end basis, of cash
distributions received by the public investment fund from
each alternative investment vehicle.
e) 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.
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.
h) 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.
SB 574
Page 3
i) 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)
4)Governs, pursuant to the California Public Records Act (CPRA),
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 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.
5)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.)
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.
Comments
1)Need for the bill. Under the CPRA, 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.
SB 574
Page 4
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
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
SB 574
Page 5
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 Sequoia did allow the Regents to
invest in private equity funds again beginning in 2010.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee:
UC indicates that this bill would require it to obtain the
required information from the investment firms through
litigation. UC anticipates such costs to be at least
$500,000.
SUPPORT: (Verified5/28/15)
California Newspaper Publishers Association, CNPA Services, Inc.
(source)
American Federation of State, County and Municipal Employees,
AFL-CIO
OPPOSITION: (Verified5/28/15)
University of California
Prepared by:Kathleen Chavira / ED. / (916) 651-4105
5/31/15 12:22:21
SB 574
Page 6
**** END ****