BILL ANALYSIS
AB 1743
Page 1
Date of Hearing: May 19, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1743 (Hernandez) - As Amended: May 10, 2010
Policy Committee: P.E.R. &
S.S.Vote: 4-1
Elections and Redistricting 7-0
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill requires placement agents dealing with state public
pension systems to register as lobbyists with the Secretary of
State and, for those dealing with local pensions, to comply with
the requirements of local lobbying ordinances. As registered
lobbyists, placement agents dealing with state pension funds
would, among other things, be prohibited from accepting payments
from external fund managers that are contingent on investment
dollars placed with the funds, and from making contributions to
retirement fund board members. The bill does not apply to
in-house employees of investment managers.
FISCAL EFFECT
1)Minor and absorbable costs to CalPERS and CalSTRS to revise
policies and notices.
2)Minor and absorbable costs to The Fair Political Practices
Commission and Secretary of State for handling additional
filings of disclosure statements and for enforcement.
3)Local enforcement costs not reimbursable.
COMMENTS
1)Purpose . The bill, co-sponsored by the CalPERs Board, State
Treasurer, and State Controller, is intended to increase
transparency and accountability of placement agent activity,
and reduce the corrupting influence that large contingency
fees can have on public pension investment decisions.
AB 1743
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According to proponents, public pension fund investment
decisions should not be based on whether they enrich middlemen
and others, but rather on whether they benefit workers,
retirees and taxpayers.
2)Background . Placement agents are intermediaries hired by
private investment managers, such as hedge funds or
private-equity investment firms, to seek funds from public
pension funds for placement with the investment manager.
Following major losses in private equity investments during
the past two years, the activities and compensation of
placement agents have received considerable scrutiny.
Investigations of placement agent activity in New York
resulted in criminal charges against several state officials.
Similar investigations of placement agent activity are
occurring in California, including scrutiny of more than $70
million in fees paid by fund managers to a former CalPERS
board member for helping private equity and real estate
investment funds to secure billions of dollars in commitments
from CalPERS.
While current law requires various income and contribution
disclosure statements from placement agents soliciting
business from public pension funds, it does not place limits
on gifts or contributions, or on contingency arrangements
between outside investment managers and placement agents.
Registered lobbyists are required to file annual disclosure
statements showing sources of their income and contributions
and their contributions to various officials. Current law also
prohibits lobbyists from:
a) Receiving payments that are contingent upon defeat,
enactment, or outcome of any proposed legislative or
administrative action.
b) Making gifts aggregating more than $10 in a calendar
month to any state candidate, elected state officer,
legislative official, or an agency official of any agency
required to be listed on the registration statement of the
lobbying firm or the lobbyist employer of the lobbyist.
c) Making a contribution to an elected state officer or
candidate for elected state office if the lobbyist is
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registered to lobby the governmental agency for which the
candidate is seeking election or the governmental agency of
the elected state officer.
3)Opposition . The Securities Industry and Financial Markets
Association (SIFMA) oppose this bill unless it is amended to
allow placement agents to continue to receive payment on a
contingency fee basis. They note that virtually all securities
transactions are paid on a contingency fee basis, citing the
way underwriters are paid to sell California public debt. They
assert that contingency fees make sense given the time and
uncertainties involved in securing public investments.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081