Placement Agents Disclosure Laws - SACRS

CALIFORNIA LEGISLATURE EXPANDS “PLACEMENT AGENT DISCLOSURE LAW”
A SPECIAL ALERT FOR SACRS AFFILIATE MEMBERS
OCTOBER, 2010
In 2009, in reaction to bi-coastal investigations into the use of “placement agents” to secure lucrative
investment management contracts for their principals with some of the nation’s largest public
pension funds, the California Legislature adopted sweeping legislation requiring investment
managers to disclose material information about the identity and use of their placement agents. AB
1584 was signed into law on October 11, 2009 as an urgency measure and became effective
immediately.
AB 1584 was patterned after the 2009 disclosure policy that CalPERS had adopted in the wake of
media coverage about alleged abuses affecting some of its board members and senior investment
staff. Insofar as SACRS-member systems are concerned, the 2009 law:
Required each retirement board to promulgate policies about the use and disclosure of
placement agents, starting July 1, 2010.
Defined "placement agent" clearly as third party "intermediaries" between “external
managers” and pension funds, but left unclear whether managers' internal marketing staff
were also to be included in the definition of “placement agent.”
Required managers to comply with each board’s policy and make disclosures about their
engagement of placement agents.
Prohibited pension funds from engaging managers who do not agree in writing to comply
with their board’s policy.
Banned managers or placement agents who violate the board’s policy from soliciting new
investments from the fund for five years, unless reduced by the board for good cause.
Required placement agents to disclose campaign contributions and gifts made to board
members over a twenty-four month period.

In 2010, in the wake of further media revelations about placement agents and an ensuing SEC
investigation, new legislation was introduced in Sacramento to extend the disclosure requirements of
AB 1584 to the in-house marketing personnel of “external managers.” AB 1743, signed into law on
September 30, 2010 and effective January 1, 2011, makes the following changes to the placement
agent law:
Sweeps internal staff of external investment managers into the definition of "placement
agents,” excluding only those who actually manage the securities and assets of the manager
for at least 1/3 of their annual work time.
Requires placement agents working in connection with investments of State pension funds
(e.g., CalPERS and CalSTRS) to register as lobbyists with the State.
Requires placement agents working in connection with investments of local pension funds
(including SACRS members) to register as lobbyists if local agencies require registration of
lobbyists at the local level.
AB 1743 makes no other changes to the disclosures or prohibitions required by its predecessor, AB
1584. As the law stands, there is no outright prohibition of the use of placement agents to
seek and secure investment contracts from SACRS’ member systems. The law (codified in the
California Government Code at sections 7513.8 through 7513.95) does, however, require disclosure
and compliance with local retirement board policies by both the external manager and the placement
agent. Investment managers for California public pension funds will now have to pay careful
attention to multiple and differing layers of disclosure and filing requirements, at the state, county,
city and even district level, depending on both state and local requirements.
We anticipate that the SACRS member systems will be amending their placement agent disclosure
policies before January 1, 2011 to reflect the expanded definitions of “placement agent.”
* * *
Please note that this Alert is for general informational purposes only, is not a formal legal
opinion, and should not be relied upon either as legal advice or as a complete analysis of the
legislation and its import in any particular fact situation. Each situation is different and we
urge the reader to consult with counsel of your choice to evaluate the meaning and effect of
the law referenced in this Alert and other applicable law.
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