BILL ANALYSIS Ó
SB 574
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Date of Hearing: July 15, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
SB 574
(Pan) - As Amended April 22, 2015
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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
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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
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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
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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".
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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