BILL NUMBER: AB 1967	INTRODUCED
	BILL TEXT


INTRODUCED BY   Assembly Member Torrico

                        FEBRUARY 14, 2008

   An act to amend Section 16642 of, and to add Section 7513.8 to,
the Government Code, relating to investments.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1967, as introduced, Torrico. Public employee retirement:
investments: sovereign wealth funds.
   The California Constitution provides that the Legislature may by
statute prohibit retirement board investments if it is in the public
interest to do so, and providing that the prohibition satisfies
specified fiduciary standards. Existing law prohibits the Public
Employees' Retirement System and the State Teachers' Retirement
System from investing public employee retirement funds in a company
with active business operations in Sudan and in Iran, as specified.
   This bill would enact the Responsible Private Equity Investment
Act of 2008. The bill would prohibit the Public Employees' Retirement
System (PERS) and the State Teachers' Retirement System (STRS) from
investing in a private equity company that is owned in whole or in
part by a sovereign wealth fund, as defined, or in a fund managed
directly or indirectly by a private equity company that is owned in
whole or in part by a sovereign wealth fund, if any country or
federation of countries with which the sovereign wealth fund is
affiliated, either directly or indirectly, is not a signatory or
party to at least 5 of 6 specified international treaties. The bill
would provide that this prohibition may be suspended based on
information in specified human rights reports made by United States
Department of State or based on the lack of such a report, as
specified. The bill would require PERS and STRS to make certain
evaluations before making any additional or new investment, or
renewing any existing investment, in these companies and funds, and
to issue a detailed written report in connection with the
evaluations. The bill would require these reports to be publicly
available and available on the Internet at least 60 days prior to any
final investment decision, as specified. The bill would prohibit
PERS and STRS from investing in these companies and funds in certain
instances, based on the evaluations, unless the board determines that
the failure to do so would be inconsistent with its constitutional
fiduciary responsibilities, and would require written statements
regarding various investment decisions.
   This bill would require PERS and STRS, on or before January 1,
2010, and every year thereafter, to file reports with the Legislature
on investment decisions. The bill would specify that PERS or STRS is
not required to take any action unless the board of administration
of the system determines, in good faith, that the action is
consistent with their constitutional fiduciary responsibilities.
   This bill would indemnify from the General Fund and hold harmless
the present, former, and future board members, officers, and
employees of, and investment managers under contract with, these
retirement systems in connection with any evaluation, report, or
investment decision made in compliance with the above provisions.
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  The Legislature finds and declares as follows:
   (a) Current members of Congress, the Chair of the Securities and
Exchange Commission, other current and former executive branch
officials, and numerous experts have expressed concern that the
growing size and influence of sovereign wealth funds could impede
regulatory enforcement, lead to increased public corruption, and pose
a threat to national security.
   (b) Sovereign wealth funds are also significantly less transparent
than other investors and are much more likely to invest in order to
achieve political rather than profit-maximizing goals, increasing the
risk of financial instability.
   (c) Many sovereign wealth funds are affiliated with, and earn
profits for, governing regimes with human rights records that are
among the worst in the world. Three of the largest sovereign wealth
funds, which together control more than $500 billion in assets, are
affiliated with the United Arab Emirates, a country whose human
rights record the State Department has described as "problematic" at
best, with "significant human rights problems" including arbitrary
and incommunicado detention, human trafficking, and "severe
restrictions on and abuses of workers' rights," among others.
   (d) Sovereign wealth funds are growing in size and in influence.
These funds are already significantly larger than all of the world's
hedge funds combined, and the Chair of the Securities and Exchange
Commission has predicted that sovereign wealth funds could grow as
large as $12 trillion by 2015.
   (e) Public retirement systems in this state currently invest in,
and with, private equity firms that are owned in significant part by
sovereign wealth funds, including sovereign wealth funds such as
those of the United Arab Emirates, that rank among the least
transparent and that are funded by governing regimes repeatedly found
to have violated basic human rights.
   (f) These investments face all of the heightened risks described
above, and it is unconscionable for this state to invest the
retirement funds of its public workers for the benefit of egregious
human rights violators.
  SEC. 2.  Section 7513.8 is added to the Government Code, to read:
   7513.8.  (a) As used in this section, the following definitions
shall apply:
   (1) "Board" means the Board of Administration of the Public
Employees' Retirement System or the Teachers' Retirement Board of the
State Teachers' Retirement System, as applicable.
   (2) "Company" means a sole proprietorship, organization,
association, corporation, partnership, venture, or other entity, and
any subsidiary or affiliate, that exists for profitmaking purposes or
to otherwise secure economic advantage.
   (3) "Invest" or "investment" means the purchase, ownership, or
control of stock or partnership shares of a company, the commitment
of funds or other assets to a company, or the commitment of funds or
other assets to be managed or subsequently invested by a company.
   (4) "Own" or "owned" means the ownership or control of any stock
or partnership shares of a company.
   (5) "Private equity company" means any sole proprietorship,
organization, association, corporation, partnership, venture, or
other entity, and any subsidiary or affiliate, that, as one among its
principal investment strategies, invests in securities that are not,
immediately following the company's investment, listed on a public
exchange. For purposes of this section, "private equity company" does
not include a company or any subsidiary or affiliate that is itself
listed on a public exchange.
   (6) "Sovereign wealth fund" means a government investment vehicle
which is funded by foreign exchange assets, and which manages those
assets separately from the official reserves of the relevant country'
s monetary authorities.
   (b) The board shall not make any additional or new investment, or
renew any existing investment, in a private equity company that is
owned in whole or in part by a sovereign wealth fund, and shall not
make any additional or new investment, or renew any existing
investment, in a fund managed directly or indirectly by a private
equity company that is owned in whole or in part by a sovereign
wealth fund, if any country or federation of countries with which the
sovereign wealth fund is affiliated, either directly or indirectly,
is not a signatory or party, as the term is used by the United
Nations, to at least five of the following international treaties
listed in this subdivision.
   (1) The International Covenant on Economic, Social and Cultural
Rights.
   (2) The International Covenant on Civil and Political Rights.
   (3) The International Convention on the Elimination of All Forms
of Racial Discrimination.
   (4) The Convention on the Elimination of All Forms of
Discrimination Against Women.
   (5) The Convention against Torture and Other Cruel, Inhuman or
Degrading Treatment or Punishment.
   (6) The Convention on the Rights of the Child.
   (c) The prohibition stated in subdivision (b) shall not apply if
either of the following conditions is met:
   (1) The United States Department of State has determined, in the
most recent applicable human rights report prepared pursuant to
Section 2151n or 2304 of Title 22 of the United States Code, or the
report prepared pursuant to Section 2464 of Title 19 of the United
States Code, that the country, countries, or federation of countries
with which the sovereign wealth fund is affiliated, either directly
or indirectly, generally respects the human rights of its citizens.
   (2) The United States Department of State did not prepare a human
rights report, as described in paragraph (1), for the country,
countries, or federation of countries with which the sovereign wealth
fund is affiliated, either directly or indirectly, in the most
recent year for which these reports were prepared.
   (d) If the prohibition in subdivision (b) does not apply, the
board shall do all of the following before making any additional or
new investment, or renewing any existing investment, in a private
equity company that is owned in whole or in part by a sovereign
wealth fund, and before making any additional or new investment, or
renewing any existing investment, in a fund managed directly or
indirectly by a private equity company that is owned in whole or in
part by a sovereign wealth fund:
   (1) Evaluate every sovereign wealth fund that owns any stock or
shares in the private equity company at issue according to all of the
following criteria with respect to which there is publicly available
information or information that the board may obtain using its best
efforts:
   (A) Transparency, which shall include consideration of:
   (i) Whether and the extent to which the sovereign wealth fund
publishes an annual report that details its investment activities,
the type, nature, size, and geographic location of each of its
investments, its returns per investment, and the currency composition
of its investments.
   (ii) Whether and the extent to which the sovereign wealth fund's
source of funding is clearly specified, its objective and investment
strategy are clearly communicated, the role of the government and of
managers in setting the sovereign wealth fund's investment strategy
is clearly established, and ethical guidelines and guidelines for
corporate responsibility are in place and clearly communicated.
   (iii) Any additional transparency-related criteria the board, in
its discretion, determines to be appropriate.
   (B) Political stability, which shall include consideration of the
record of any country, countries, or federation of countries with
which the sovereign wealth fund is affiliated, either directly or
indirectly, regarding the following, with a particular focus on
subparagraph (ii):
   (i) Internal and external conflict, public corruption, and
procedures for democratic accountability.
   (ii) Respect for and effective enforcement of internationally
recognized human rights, as set forth in the Universal Declaration on
Human Rights.
   (iii) The presence and effective operation of an independent
judiciary.
   (C) Productive labor practices, which shall include consideration
of the record of any country, countries, or federation of countries
with which the sovereign wealth fund is affiliated, either directly
or indirectly, regarding the effective prohibition of child and
forced labor, the effective enforcement of rights to organize, to
strike, and to bargain collectively, and the effective enforcement of
the rights and principles stated in the International Labor
Organization's Declaration on Fundamental Principles and Rights at
Work.
   (D) Corporate social responsibility, which shall include
consideration of whether the sovereign wealth fund is in compliance
with the Global Sullivan Principles of Corporate Social
Responsibility and the United Nations' Principles for Responsible
Investment.
   (2) Prepare a detailed written report of the evaluation conducted
pursuant to paragraph (1). This report shall be a public record
within the meaning of the California Public Records Act (Chapter 3.5
(commencing with Section 6250)) and shall not be considered due
diligence materials within the meaning of Section 6254.26. The report
shall be made publicly available and available on the Internet at
least 60 days prior to any final investment decision as described in
paragraph (3).
   (3) Consider the evaluation required by paragraph (1) and the
report required by paragraph (2) before making any final investment
decision regarding any additional or new investment, or the renewal
of any existing investment, in a private equity company that is owned
in whole or in part by the sovereign wealth fund subject to the
evaluation and report, and before making any final investment
decision regarding any additional or new investment, or the renewal
of any existing investment, in a fund managed directly or indirectly
by a private equity company that is owned in whole or in part by the
sovereign wealth fund subject to the evaluation and report.
   (e) In those cases where the board's evaluation pursuant to
paragraph (1) of subdivision (d) reveals evidence of a serious lack
of transparency, lack of respect for internationally recognized human
rights, lack of productive labor practices, or lack of compliance
with the applicable principles for socially responsible investing,
the board shall do both of the following:
   (1) Not make any additional or new investment, or renew any
existing investment, in a private equity company that is owned in
whole or in part by the sovereign wealth fund subject to the
evaluation, and not make any additional or new investment, or renew
any existing investment, in a fund managed directly or indirectly by
a private equity company that is owned in whole or in part by the
sovereign wealth fund subject to the evaluation, unless the board
determines that the failure to do so would be inconsistent with its
fiduciary responsibilities as described in Section 17 of Article XVI
of the California Constitution.
   (2) State in writing whether it has decided not to make the
investment at issue or whether it has decided to proceed with the
investment, notwithstanding the evidence described in paragraph (1)
of subdivision (d). This statement shall be a public record within
the meaning of the California Public Records Act (Chapter 3.5
(commencing with Section 6250)) and shall be made publicly available
and available on the Internet within 10 days of the board's final
investment decision.
   (f) On or before January 1, 2010, and every year thereafter, the
board shall file a report with the Legislature. The report shall
describe all of the following:
   (1) Any decision not to make a new or additional investment, or
not to renew an existing investment, that was made as a result of the
prohibition in subdivision (b).
   (2) Any decision to not to make a new or additional investment, or
not to renew an existing investment, that was made as a result of
the evaluation or report required by paragraphs (1) and (2) of
subdivision (d).
   (3) Any decision to make a new or additional investment, or to
renew an existing investment, that was made notwithstanding evidence
of a serious lack of transparency, lack of respect for
internationally recognized human rights, lack of productive labor
practices, or lack of compliance with the applicable principles for
socially responsible investing, and the reasons why the decision was
required to ensure consistency with the board's fiduciary
responsibilities as described in Section 17 of Article XVI of the
California Constitution.
   (g) Nothing in this section shall require the board to take any
action unless the board determines, in good faith, that the action is
consistent with the fiduciary responsibilities of the board as
described in Section 17 of Article XVI of the California
Constitution.
   (h) This section shall be known and may be cited as the
Responsible Private Equity Investment Act of 2008.
  SEC. 3.  Section 16642 of the Government Code is amended to read:
   16642.  Present, future, and former board members of the Public
Employees' Retirement System or the State Teachers' Retirement
System, jointly and individually, state officers and employees,
research firms described in subdivision (d) of Section 7513.6, and
investment managers under contract with the Public Employees'
Retirement System or the State Teachers' Retirement System shall be
indemnified from the General Fund and held harmless by the State of
California from all claims, demands, suits, actions, damages,
judgments, costs, charges and expenses, including court costs and
attorney's fees, and against all liability, losses, and damages of
any nature whatsoever that these present, future, or former board
members, officers, employees, research firms as described in
subdivision (d) of Section 7513.6, or contract investment managers
shall or may at any time sustain by reason of any decision to
restrict, reduce, or eliminate investments pursuant to Sections
7513.6 and 7513.7  , or by reason of any evaluation conducted or
report made pursuant to Section 7513.8, or by reason of any
investment decision made in compliance with Section 7513.8  .
  SEC. 4.  The provisions of this act are severable. If any provision
of this act or its application is held invalid, that invalidity
shall not affect other provisions or applications that can be given
effect without the invalid provision or application.