California Enacts Legislation To Address Recent Scandals Involving Placement Agents

Profession:Goodwin Procter LLP

Article by Jonathan Axelrad , Gerald G. "Jerry" Chacon, Jr. and David W. Watson

On October 11, 2009, California enacted Assembly Bill 1584 ("AB 1584") which imposes new disclosure and other requirements upon the involvement of a "Placement Agent" in the investment activities of a California public pension or retirement system ("Public Plan").

Key requirements of AB 1584 include:

The development by each Public Plan board ("Board") of a "Policy" mandating that any fund manager using a Placement Agent in connection with investments by such Public Plan disclose the Placement Agent's identity, qualifications, services and compensation. Specific penalties for fund managers that violate a Policy. Disclosure by Placement Agents of certain gifts and campaign contributions to Board members. This Client Alert briefly describes AB 1584 and its implications for fund managers of private investment funds. (AB 1584 also imposes new limitations on the activities of current and former government officials. Those limitations are not addressed in this Client Alert.)

Disclosure By Fund Managers Under AB 1584, a Public Plan's Board has broad discretion to establish its Policy but the Policy must require, at a minimum, disclosure or delivery by a fund manager of the following:

The existence of any relationship between the fund manager and a Placement Agent, as well as a description of the services to be performed by the Placement Agent. A description of the compensation provided, or agreed to be provided, to the Placement Agent. A resume for each officer, partner or principal of the Placement Agent detailing such person's education, professional designations, regulatory licenses, and investment and work experience. A statement as to whether the Placement Agent, or any of its affiliates, is registered with the Securities and Exchange Commission or the Financial Industry Regulatory Association, or any similar regulatory agent in a country other than the United States, and the details of such registration – or an explanation as to why no such registration is required. A statement as to whether the Placement Agent, or any of its affiliates, is registered as a lobbyist with any state or national government. Enforcement And Penalties Under AB 1584, a Public Plan is not permitted to enter into any agreement with a fund manager unless the fund manager agrees in writing to comply with such Plan's Policy. A fund manager that violates a Public Plan's Policy...

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