Seeking To Provide Services to Public Retirement Funds in California May Make You a Lobbyist

In September of 2010, the Californialegislature passed AB 1743 to supervise “External Managers” and require “Placement Agents” to register as lobbyists.  Generally speaking, “External Managers” are defined as a person or entity who is retained or seeking to be retained by a state public retirement system in California to manage a portfolio of assets for compensation, and a “Placement Agent” is an individual or entity hired or retained by an external manager who acts as a finder, solicitor or marketer to a public retirement system or pension fund in California. Placement agents, therefore, promote external management services to California state pension funds.

The following are two important exclusions from the definitions of “Placement Agent” under AB 1743:

  • One-Third Rule – personnel of external managers who spend one-third or more of his or her time managing securities; and
  • Competitive Bidding Process Rule – personnel of an external manager whereby the external manager is: (1) registered as an investment adviser or broker dealer with the SEC; (2) has been elected through a competitive bidding process; and (3) whose contract specifies the manager’s fiduciary standard of care.

It is important to specify that AB 1743 only applies to lobbying state retirement funds, such as the California State Teachers’ Retirement System (CalSTRS) and the California Public Employees’ Retirement System (CalPERS).  However, local lobbying ordinances may still govern the solicitation of local pension funds. Accordingly, if you are marketing your services to local retirement funds you should be mindful of any applicable registration, reporting or other requirements.

For additional information placement agents and lobbyist registration, please contact Brent Cunningham, Associate Attorney by email at brent.cunningham@jackolg.com or by phone at (619) 298-2880.

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