BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 574  


                                                                    Page  1





          Date of Hearing:  July 15, 2015


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                                 Jimmy Gomez, Chair


          SB 574  
          (Pan) - As Amended April 22, 2015


           ----------------------------------------------------------------- 
          |Policy       |Higher Education               |Vote:|8 - 4        |
          |Committee:   |                               |     |             |
          |             |                               |     |             |
          |             |                               |     |             |
          |-------------+-------------------------------+-----+-------------|
          |             |                               |     |             |
          |             |                               |     |             |
          |             |                               |     |             |
          |-------------+-------------------------------+-----+-------------|
          |             |                               |     |             |
          |             |                               |     |             |
          |             |                               |     |             |
           ----------------------------------------------------------------- 


          Urgency:  No  State Mandated Local Program:  NoReimbursable:  No


          SUMMARY:


          This bill requires the University of California (UC) to obtain  
          the following information, as currently required by Government  
          Code Section 6254.26(b), from each private equity fund, venture  
          fund, hedge fund, or absolute return fund in which the UC  








                                                                     SB 574  


                                                                    Page  2





          provides or has provided funds for investment:


          1)Name, address, and vintage year of each alternative investment  
            vehicle;


          2)Dollar amount of the commitment made to each alternative  
            investment vehicle by the public investment fund since  
            inception;


          3)Dollar amount of cash contributions made by the public  
            investment fund to each alternative investment vehicle since  
            inception;


          4)Dollar amount, on a fiscal yearend basis, of cash  
            distributions received by the public investment fund from each  
            alternative investment vehicle;


          5)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;


          6)Net internal rate of return of each alternative investment  
            vehicle since inception;


          7)Investment multiple of each alternative investment vehicle  
            since inception;


          8)Dollar amount of the total management fees and costs paid on  
            an annual fiscal yearend basis, by the public investment fund  








                                                                     SB 574  


                                                                    Page  3





            to each alternative investment vehicle; and,


          9)Dollar amount of cash profit received by public investment  
            funds from each alternative investment vehicle on a fiscal  
            year-end basis.


          FISCAL EFFECT:


          UC anticipates one-time litigation-related costs of at least  
          $500,000 to attempt to obtain some of the required information.  
          In addition, to the extent the requirement to obtain such  
          information leads to high-performing alternative investment  
          firms rejecting UC's further participation, UC could realize  
          lower returns on its investment portfolio.


          COMMENTS:


          1)Background. The California Public Records Act (CPRA) generally  
            makes all public records accessible to the public upon  
            request. There are 30 general categories of documents or  
            information that are exempt from such disclosure.


            In June 2003, the Alameda County Superior Court-citing the  
            CPRA and in response to a complaint filed by Reuters LLC  
            following a request to UC for information regarding UC's  
            investments in specified funds, required 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), which was co-sponsored by UC and CalPERS,  
            established Government Code Section 6254.26, requiring the  
            public disclosure of some information regarding performance of  
            alternative investment, but protecting the confidentiality of  








                                                                     SB 574  


                                                                    Page  4





            certain proprietary information.


          2)Purpose. This bill, sponsored by the California Newspaper  
            Publishers Association (CPNA), 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 2003 Superior Court decision.  The  
            Superior Court had found that the UC Regents were required to  
            use "objectively reasonable efforts" to obtain individual fund  
            information (#6 in the above Summary) for the Regent's current  
            investments from two private equity firms (Kleiner-Perkins and  
            Sequoia) even though the Regents had not prepared, owned,  
            used, or retained this fund information.  This ruling was  
            overturned by the appeals court which found that, because the  
            information was not prepared, owned, used or retained by the  
            Regents, it was not a "public record" within the meaning of  
            CPRA.
            The CNPA argues that this ruling allows the UC to violate the  
            agreement negotiated as part of SB 439, and that this bill  
            simply requires UC to comply with the disclosure requirements  
            of the law it sponsored in 2005.


          3)Opposition. UC notes that its Private Equity partnerships are  
            10- to 13-year investments, and that the only relevant  
            rate-of-return measure is the amount returned at the end of  
            the partnership compared to the capital invested. UC indicates  
            that it receives information from these funds annually at the  
            firm level, which it maintains provides both UC and the public  
            with the necessary information to gauge overall performance  
            for the firm under contract. UC argues that SB 574, by  
            requiring the University to obtain specific records for each  
            of its alternative investments that are not critical to its  
            investment decisions, "is illogical and could result in the  
            University being prohibited from participating in certain  
            types of investments". 










                                                                     SB 574  


                                                                    Page  5






            The California Chamber of Commerce argues that the bill would  
            "set a troubling precedent by expanding the reach of the CPRA  
            to include documents that are prepared, owned, used and  
            retained by private entities merely because those documents  
            contain information related to an agency's business."





          Analysis Prepared by:Chuck Nicol / APPR. / (916)  
          319-2081