BILL ANALYSIS �
AB 17
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Date of Hearing: March 30, 2011
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Warren T. Furutani, Chair
AB 17 (Davis) - As Introduced: December 6, 2010
SUBJECT : Retirement: pension fund management.
SUMMARY : Requires the California State Teachers' Retirement
System (CalSTRS) and California Public Employees' Retirement
System (CalPERS) boards to report annually to the Legislature on
the ethnicity and gender of investment managers who participate
in managing its portfolio, as specified, and of the brokerage
firms who provide brokerage services to the fund's investment
management firms, as specified. Specifically, this bill :
1)Requires CalPERS and CalSTRS to report annually to the
Legislature on both the ethnicity and gender of investment
managers, as specified, who are employed by entities that
participate in managing the system's investment portfolios and
the ownership breakdown of investment and brokerage firms with
which the system's contract.
2)Requires the report to include a detailed and verifiable plan
and strategy to increase participation of emerging investment
managers and emerging brokerage firms in each asset class.
3)Defines "emerging investment manager" and "emerging brokerage
firm" as firms which are majority-owned by women or minority
ethnic groups managing portfolios below a specified size,
depending on asset class.
EXISTING LAW :
1)Provides, under the state Constitution by Proposition 162, the
California Pension Protection Act of 1992, that the boards of
California's public retirement systems have "plenary authority
and fiduciary responsibility for investment of monies and
administration of the system". Under Proposition 162, the
Legislature also retained its authority to, by statute,
"continue to prohibit certain investments by a retirement
board where it is in the public interest to do so, and
provided that the prohibition satisfies the standards of
fiduciary care and loyalty required of a retirement board
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pursuant to this section."
The Constitution also states, "The members of the retirement
board of a public pension or retirement system shall discharge
their duties with respect to the system solely in the interest
of, and for the exclusive purposes of providing benefits to,
participants and their beneficiaries, minimizing employer
contributions thereto, and defraying reasonable expenses of
administering the system."
2)Provides, under Proposition 209, which was enacted by voter
initiative in 1996, for amending the California Constitution
to insert Section 31 to Article I, reading: "The state shall
not discriminate against, or grant preferential treatment to,
any individual or group on the basis of race, sex, color,
ethnicity, or national origin in the operation of public
employment, public education, or public contracting."
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, "As the nation's leader in
attracting private equity capital and advancing innovation,
California should also be the leader in encouraging equal
opportunity in our state pension fund utilization of emerging
investment managers. AB 17 aims to support the state's economic
growth and prosperity through increasing the participation of
emerging managers and emerging brokerage firms in both CalPERS
and CalSTRS."
Supporters of the bill state, "Women and minority-owned
businesses are not reflected among pension fund managers to the
same extent as they are represented in the U.S. population - 51%
female, 25% non-white. Currently, participation by these groups
in California pension fund asset management continues to be
disproportionately low based on limited available state-level
data."
Supporters conclude, "AB 1913 aims to support the state's
economic growth and prosperity through inclusion. The bill's
prescribed method for inclusion is to require measurement of the
participation of emerging investment managers, and have
California's pension funds set their own goals for using these
kinds of firms, in a manner consistent with meeting their
fiduciary obligations."
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According to information provided to the Committee by CalPERS,
they actively encourage participation by minority and
women-owned and emerging investment management firms and use the
services of specialist consultants in diversity investments to
further their outreach. CalPERS also engages in research
briefings, hosts outreach events and participates in emerging
manager and diversity conferences nationwide. The CalPERS
Investment Officer for Diversity provides another point of
contact for emerging managers, as does a web-based submission
process that allows money managers to present investment
proposals directly to Investment Office staff.
The CalPERS Board of Administration has adopted several policies
and investment programs to diversify its investments portfolio,
which in turn, provides opportunities and resources for the
investment industry as a whole. Through their private equity
program and their California Initiative, which invests in
underserved communities throughout California, CalPERS has more
than $4 billion committed to firms with significant minority
participation. Furthermore, CalPERS created an innovative
Management Development Program more than ten years ago to invest
directly in small and emerging funds in exchange for an equity
stake. In 2007, CalPERS also established a series of emerging
manager programs including hedge funds and private equity.
CalPERS actively encourages minority-owned and emerging
money-management firms to participate in our research briefings
and frequent outreach events held around the country.
According to CalSTRS, "Pension funds around the country have
recently begun pursuing strategies to increase the diversity of
their investing managers, recognizing these emerging managers as
a source of untapped economic value. In this vein, the CalSTRS
board and staff have been pursuing strategies to expand the
diversity of investment management, both internally and
externally. In 2003, the board adopted Strength as one of
CalSTRS Core Values, elaborated as ensuring the strength of
CalSTRS by embracing a diversity of ideas and people, and set
forth an objective to increase the diversity of investment
managers, by focusing efforts on emerging managers. CalSTRS
defines an emerging manager in terms of the size and longevity
of the fund managers, without regard to gender or ethnicity. As
a direct result of this effort, women and minorities now manage
more than $3 billion of assets for CalSTRS. CalSTRS has received
national recognition, including several awards, for its efforts
and actions to expand diversity within its investment portfolio
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and is seen as an industry leader and best practice model.
"This dedication to diversity has brought about the development
of a business plan to formalize the commitment to diversity
within CalSTRS investment portfolio, and to make a statement to
the industry that this is a long-term effort. The business plan
is designed to provide the Investment Committee, investment
staff, and external consultants a plan of action for the next
five years. The purpose of this business plan is to formalize
the programs CalSTRS currently has in place, to set new goals,
and establish a long-term plan. Diversity will be further
interwoven across CalSTRS' entire investment portfolio and
program-thus, making it a truly comprehensive plan."
This bill is similar to AB 1913 (Davis) and AB 1919 (Davis) both
from last year. Both bills were held in the Senate Rules
Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California State NAACP (Sponsor)
United Teachers Los Angeles
Opposition
None on file
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957