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