S0724B0894A02115 MSP:CMD 06/17/19 #90 A02115
AMENDMENTS TO SENATE BILL NO. 724
Sponsor: SENATOR BROWNE
Printer's No. 894
Amend Bill, page 1, line 13, by inserting after "Board;"
in administration and miscellaneous provisions,
providing for the establishment of the Public Markets
Emerging Investment Manager Program;
Amend Bill, page 12, by inserting between lines 23 and 24
Section 4.1. Chapter 85 of Title 24 is amended by adding a
subchapter to read:
SUBCHAPTER D
PUBLIC MARKETS EMERGING INVESTMENT MANAGER PROGRAM
Sec.
8541. Definitions.
8542. Establishment.
8543. Funding.
8544. Participation criteria.
8545. Preference.
8546. Requirements and limitations of firms.
8547. Administration.
§ 8541. Definitions.
The following words and phrases when used in this subchapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Program." The Public Markets Emerging Investment Manager
Program established under section 8542 (relating to
establishment).
§ 8542. Establishment.
(a) Fiduciary duty of board.--Consistent with the board's
fiduciary responsibilities, the board shall establish a Public
Markets Emerging Investment Manager Program.
(b) Location of managers.--The board shall locate fund
managers with a history of generating positive risk adjusted
returns.
(c) Source list.--After location of fund managers, the board
shall provide a source of potential managers for the main fund.
(d) Assistance with marketing.--In order to grow public
market emerging investments firms, the board shall assist in
using the system's name in the manager's marketing efforts.
§ 8543. Funding.
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The board shall allocate an amount of at least $250,000,000
and not more than $1,000,000,000 to the program. Funding for
each investment manager shall come from assets allocated within
the main fund, similar to or most closely related to the
investment manager's mandate. The maximum number of investment
managers in the program at any one time may not exceed 10,
except that the program may be implemented and run with less
than 10 investment managers.
§ 8544. Participation criteria.
In order to be considered to participate in the program, an
investment manager must meet the following criteria:
(1) Be registered under the Investment Advisors Act of
1940 (54 Stat. 847, 15 U.S.C. § 80b-1 et seq.) or be exempt
from the Investment Advisors Act of 1940.
(2) Have the ability to demonstrate real and contented
transparency of positions and transactions.
(3) Have the ability to provide and show quarterly
liquidity.
(4) A firm, portfolio manager or any combination of firm
and portfolio manager must have a five year historical
performance record verified by at least one consultant or
accounting firm in accordance with the Global Investment
Performance Standard in effect on the effective date of this
section.
§ 8545. Preference.
Preference shall be given to investment managers deemed to
meet the objectives, goals and required criteria contained under
this subsection, plus demonstration of at least one of the
following characteristics:
(1) Be an investment management firm headquartered or
incorporated within this Commonwealth.
(2) Be a:
(i) veteran-owned investment management firm, with
proper DD 214 verification and honorable discharge; or
(ii) service-disabled veteran-owned investment
management firm with a letter from the United States
Department of Veteran Affairs.
(3) Be a minority-owned or women-owned investment
management firm approved by the Office of Minority and Women
Business Enterprise in accordance with the criteria
established by Executive Order No. 1987-18 and 4 Pa. Code §
68.204 (relating to eligibility standards).
§ 8546. Requirements and limitations of firms.
(a) Equity, commodity or absolute return exposure firms.--
Firms considered to provide equity, commodity or absolute return
exposure may not have more than $1,500,000,000 of total assets
under management when hired. If the total assets under
management exceed $3,000,000,000, the investment managers shall
be terminated in a reasonable period of time.
(b) Fixed-income exposure firms.--Firms considered to
provide fixed-income exposure shall have no more than
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$3,000,000,000 of total assets under management when hired. If
the total assets under management exceeds $6,000,000,000,
existing investment managers shall be terminated within a
reasonable period of time.
(c) Performance-based fee accounts.--For performance-based
fee accounts, a manager must exceed both a hurdle rate and a
high water mark before the manager can earn the performance-
based fee.
(d) Transition to main fund.--Investment managers hired into
the program may continue in the program for a period of at least
three years, but not more than five years. If the investment
manager generates strong risk adjusted returns, the Investment
Office shall use best efforts to make a place in the main fund
for the investment manager. The Investment Office shall consider
things such as the investment manager's assets under management
and projected ability to continue generating strong risk
adjusted returns in the future.
§ 8547. Administration.
(a) Authority to hire.--The board and the Investment Office
may hire and fund any investment manager meeting the objectives,
goals and criteria under this section.
(b) Prohibition of investment.--An investment may not be
made into an investment vehicle that primarily includes private
equity, private debt, venture capital or private real estate
instruments. An investment in an absolute return strategy shall
be subject to manager selection requirements within the absolute
return policy.
(c) Emerging manager portfolio manager.--The Investment
Office shall appoint an Emerging Manager Portfolio Manager who
shall be responsible for administering the program. The Emerging
Manager Portfolio Manager shall meet with managers that appear
to meet the objectives, goals and criteria of this section. The
Emerging Manager Portfolio Manager shall recommend qualified
investment managers for inclusion into the main fund and shall
further advise the Investment Office if termination of an
investment manager is recommended. An investment manager may be
terminated by the Emerging Manager Portfolio Manager, with
approval from the Investment Office, if the investment manager
is underperforming, not generating strong risk adjusted returns,
not meeting the criteria to move into the main fund, changes
investment processes, has personnel turnover or any other reason
which is deemed by the Investment Office to be in the best
interests of the system.
(d) Internal Review Committee.--An investment manager
considered for hiring into the program shall meet with the
Internal Review Committee. The Internal Review Committee shall
review each manager considered for inclusion in the program and
provide feedback to the Emerging Manager Portfolio Manager.
Investment Office approval shall be required to hire a manager
into the program, including the Emerging Manager Portfolio
Manager, the Emerging Manager Portfolio Manager's supervisor and
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the Chief Investment Officer.
(e) Approval for exceptional investment manager.--If the
Emerging Manager Portfolio Manager, the Chief Investment Officer
or other qualified staff have located an exceptional investment
manager that does not meet the required criteria established
under this section, the Investment Office shall obtain board
approval for hiring. The Investment Office shall present to the
board the specific reasons for hiring the investment manager.
(f) Contract requirements.--Each investment manager shall
manage its portfolio within the constraints of the contract
entered into between the investment manager and the board, the
Investment Policy Statement, Objectives and Guidelines, any
applicable addendum and any applicable amendments to the
contract and Investment Policy Statement, Objectives and
Guidelines. The Investment Office and board shall have authority
to negotiate the investment contract with the investment
manager, including the investment guidelines.
(g) Insurance.--Each of the standard insurance provisions in
the Investment Policy Statement, Objectives and Guidelines,
except for the maximum deductibles, shall apply to the
investment manager until the investment manager is either
managing over $100,000,000 for the program or is moved out of
the program into the main fund. The maximum deductible for both
the error and omissions insurance and the fidelity bond shall be
the greater of 10% of audited retained earnings or the
following:
Asset Size Maximum Deductible
$0 - $50,000,000 $50,000
$50,000,000 - $75,000,000 $100,000
$75,000,000 - $100,000,000 $200,000
(h) Funding.--Board approval shall be required for total
capital allocations exceeding $100,000,000. Investment strategy
limitations shall be consistent with Investment Policy Statement
constraints. The Emerging Manager Portfolio Manager, the
Emerging Manager Portfolio Manager's supervisor and the Chief
Investment Officer shall determine the amount of the initial
allocation and each subsequent allocation to each investment
manager.
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See A02115 in
the context
of SB0724