Bill would force Calif. pension funds to report ethnicity, gender of some investment managers

Bill requires diversity in Calif. pension funds

SACRAMENTO, Calif. — California’s public pension funds would have to report the ethnicity and gender of some of the outside investment managers they hire under a bill that passed the state Assembly on Thursday.

The bill states that businesses owned by women and minorities are not adequately represented in the state’s pension fund portfolios, compared to their proportion of California’s population. It passed on a 41-22 vote and now moves to the state Senate.

California’s Public Employees’ Retirement System, which is known as CalPERS, and the State Teachers’ Retirement System, known as CalSTRS, hire external companies to manage parts of their investment portfolios.

The bill seeks to increase the pension funds’ business with what it terms “emerging investment managers.” It defines those as qualified investment advisers who are women or members of a minority group, and who would manage a portfolio of between $10 million and $1 billion.

Supporters of the measure say the reporting requirement is necessary to ensure diversity in the investment contracts of California’s pension funds. They want to see 10 percent of the funds’ portfolios managed by emerging investment managers.

“You might think that we’re trying to discuss issues of the 1950s about integration,” said Assemblyman Mike Davis, D-Los Angeles, who introduced the bill. “We’re talking here about the issue of inclusion.”

Republican lawmakers opposed the legislation, saying the state constitution prevents such quotas. They cited Proposition 209, an initiative passed by voters in 1996, which prevents the state from granting preferential treatment to individuals or groups based on gender or ethnicity, among other characteristics, when granting public contracts.

“For us to be trying to micromanage the political nuances of issues, as opposed to reforming this dysfunctional body, I think is inappropriate in this time of economic calamity,” said Assemblyman Sam Blakeslee, R-San Luis Obispo.

Earlier this week, the CalPERS board delayed a decision about whether to seek an additional $600 million from state coffers. The additional money to pay the pensions of retirees is needed in part to offset investment losses in recent years.

The nation’s largest public pension fund, which serves 1.6 million government employees and retirees, said it lost $55.2 billion in its 2008-09 fiscal year.

“It comes at precisely the wrong time, with CalPERS now facing a massive shortfall in its investment portfolio,” said Assemblyman Chuck DeVore, R-Irvine, who is running for U.S. Senate.

Democrats countered that the bill would encourage diversity in investments, which could help the funds.

“It is true that our pension systems are in trouble, but it is not because minorities are involved,” said Assemblyman Juan Arambula, I-Fresno. “The biggest opportunities for economic investments are in minority communities.”

CalPERS hired a new investment diversity officer in March to reach out to emerging managers. Pat Macht, director of external affairs for CalPERS, said they are working to amend the bill.

“The definition in the bill is not consistent with how CalPERS defines emerging managers,” Macht said.

CalSTRS defines an emerging manager or firm as one managing less than $2 billion in assets.

“I want not only the big Wall Street firms to have opportunities for financial management,” Davis said. “When you look at the mortgage crisis, it wasn’t the emerging firms that were at the heart of it.”

The state Assembly bill is AB1913.