California's Next Step into Pension Fund Reform

Earlier this month the California Legislature passed AB 1743, which amends the Political Reform Act of 1974 to require placement agents to register as lobbyists and thereby requiring them to comply with all regulations and restrictions imposed on lobbyists. The bill also amends the definition of placement agent for investment advisers who do business with state or local public retirement systems/pension funds.  The current law, which we discussed here, requires state and local public retirement systems to implement a disclosure policy that requires an external asset manager to publicly disclose a placement agent. Current law defines a "placement agent" as any person or entity hired, engaged or retained by an external asset manager, who is compensated to act as a solicitor, marketer, or other intermediary in connection with the offer or sale of securities, assets, or asset management services to a public pension system. The new law, inter-alia, exempts employees, officers, directors, equityholders, partners, members, and trustees of an external manager who spend one-third or more of his or her time, during a calendar year, managing the securities or assets owned, controlled, invested, or held by the external manager. Additionally, the bill requires the Public Employees’ Retirement System (CalPERS) and the State Teachers’ Retirement System (CalSTRS) to each provide to the Legislature, not later than August 1, 2012, a report on the use of placement agents in connection with investments made by those retirement systems. Governor Schwarzenegger has yet to sign the bill, but if it is signed into law, AB 1743 will become effective January 1, 2011.