HOUSE BILL 195
53rd legislature - STATE OF NEW MEXICO - second session, 2018
INTRODUCED BY
Bill McCamley
AN ACT
RELATING TO STATE INVESTMENTS; REQUIRING REPORTING ON ALTERNATIVE INVESTMENTS MADE BY THE EDUCATIONAL RETIREMENT BOARD, THE PUBLIC EMPLOYEES RETIREMENT ASSOCIATION AND THE STATE INVESTMENT COUNCIL.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:
SECTION 1. [NEW MATERIAL] STATE INVESTMENTS--ALTERNATIVE INVESTMENTS--REPORTING.--
A. Once annually, an alternative investment manager that receives capital commitments for an alternative investment vehicle from a fund managed by an investing agency shall report to the state treasurer the following information, compiled in an electronic spreadsheet format and as prescribed by the state treasurer:
(1) the management fees and expenses paid by investors to the alternative investment vehicle, the alternative investment manager or a related party;
(2) the fees and expenses, including partnership expenses, not included in Paragraph (1) of this subsection that are paid by the alternative investment vehicle to the alternative investment manager or a related party;
(3) the carried interest or incentive allocation distributed to an alternative investment manager or related parties;
(4) the aggregate fees and expenses incurred by all the portfolio holdings held within the alternative investment vehicle that are paid to the alternative investment manager or related parties;
(5) the amount of all management fee waivers and offsets made by the alternative investment vehicle alternative investment manager or general partners;
(6) amounts paid in indemnification by the alternative investment vehicle and amounts deducted from payments owed by the alternative investment manager relating to indemnification;
(7) the gross rate of return and net rate of return of each alternative investment vehicle for the preceding one-, five- and ten-year periods, as applicable, and for the period since inception; return calculations shall disclose the use of subscription line financing, if applicable, and reflect the amount of returns had subscription line financing not been used; and
(8) the amount of compensation, including annual salary, carried interest and other compensation required by item 402(b) of federal securities and exchange commission regulation S-K to be reported, of the alternative investment manager's principal executive officer, principal financial officer and three most-highly compensated executive officers.
B. Subsection A of this section applies to all agreements an investing agency enters into on or after July 1, 2018, to all existing agreements in accordance with which an investing agency makes a capital commitment, amendment, renewal or extension on or after July 1, 2018 and to a subsequent agreement that implements, memorializes or provides detail about either of those types of agreements. However, for such an agreement that consists of a modification of, or amendment to, an agreement for which the disclosures required by this section have been made, an alternative investment manager may, instead of complying in full with the provisions of Subsection A of this section:
(1) identify the disclosures made in accordance with Subsection A of this section and disclose only the parts of the modification or amendment that modify, alter or affect the provisions previously disclosed; or
(2) make and disclose a finding that the modification or amendment does not modify, alter or affect the provisions previously disclosed.
C. Beginning on July 1, 2018, an alternative investment manager that enters into an agreement with an investing agency to invest in an alternative investment vehicle shall, within ninety days after entering into the agreement, submit a copy of the agreement to the state treasurer.
D. The state treasurer shall make available the information submitted in accordance with Subsections A through C of this section by:
(1) at least once each year presenting a report with the compiled information at a meeting open to the public; and
(2) posting the information as it is received on the office of the state treasurer's website and maintaining it there.
E. The failure of an alternative investment manager to comply with Subsections A through C of this section shall not be deemed a violation of the agreement concerning which those subsections require disclosure.
F. As used in this section:
(1) "agreement" means a binding contract, often referred to as a limited partnership agreement, that sets out the parties to the agreement and terms, including terms concerning capital contributions, indemnifications, fees, clawbacks and fee waivers; as used in this paragraph:
(a) "clawback" includes all clawback provisions, including provisions allowing an alternative investment manager to pay back an amount less than the full cost of an overpayment received by the manager and provisions necessary to understanding the mechanics of a clawback, and the defined terms related to or affecting the clawback provisions;
(b) "fee waiver" includes all management fee waiver provisions, including provisions allowing an alternative investment manager to waive fees, provisions that specify the mechanics of a fee waiver or repayment, provisions that specify the magnitude of the fee waiver and provisions necessary to understanding the mechanics of the fee waiver, and the defined terms related to or affecting the fee waiver provisions; and
(c) "indemnifications" includes all indemnification provisions, including provisions requiring an alternative investment vehicle or its investors to indemnify the alternative investment manager or a related person or party for settlements or judgments paid and provisions necessary to understanding the mechanics of the indemnification, and the defined terms related to or affecting the indemnification provisions;
(2) "alternative investment" means an investment in a private equity fund, venture fund, hedge fund, absolute return fund or investment pool that is privately organized, actively managed by investment professionals and pays performance or incentive fees to investment managers;
(3) "alternative investment manager" means the general partner, adviser, affiliates or other related parties:
(a) with decision-making authority over an alternative investment vehicle; or
(b) providing services to or on behalf of portfolio holdings;
(4) "alternative investment vehicle" means a limited partnership, limited liability company, pooled investment entity, separate account with one or more investors or entity with a legal structure similar to those through which an investing agency invests in an alternative investment to engage in strategies involving equity or debt financing of public or private companies;
(5) "carried interest" means a share of profits from an alternative investment vehicle, including allocations of alternative investment vehicle profits received by an alternative investment manager in consideration of having waived fees that the alternative investment manager might otherwise be entitled to receive, distributed to an alternative investment manager or general partner;
(6) "gross rate of return" means the internal rate of return for an alternative investment vehicle before the reduction of the fees and expenses described in Paragraph (2) of Subsection A of this section;
(7) "investing agency" means the educational retirement board, the public employees retirement association and the state investment council;
(8) "operational person" means an operational partner, senior advisor, consultant or employee of a relevant entity of whose primary activity for that relevant entity is to provide operational or back office support to a portfolio holding of an alternative investment vehicle, account or fund managed by a related person;
(9) "person" means an individual, corporation, partnership, limited partnership, limited liability company or association;
(10) "portfolio holding":
(a) means individual portfolio investments made by an alternative investment vehicle; and
(b) includes a business, partnership, real property or other type of business entity or asset in which an alternative investment vehicle has: 1) held an interest in the securities of the entity or asset; or 2) held a real property interest in, or acted as a lender to, the entity or asset;
(11) "related party" means:
(a) a related person;
(b) an operational person;
(c) an entity more than ten percent of the ownership of which is held directly or indirectly, whether through other entities or trusts, by a related person or operational person, regardless of whether the related person or operational person participates in the carried interest received by the general partner or the special limited partner; or
(d) a consulting, legal or other type of service provider: 1) regularly engaged by portfolio companies of an alternative investment vehicle, account or fund managed by a related person; and 2) that provides advice or services to a related person or relevant entity;
(12) "related person" means:
(a) a current or former employee, manager or partner of a relevant entity who is involved in the investment activities or accounting and valuation functions of the relevant entity; or
(b) a family member of any of those people; and
(13) "relevant entity" means:
(a) the general partner, a separate carry vehicle or the investor advisor of an alternative investment vehicle, account or fund advised or managed by a current or former related person; or
(b) the parent, subsidiary or a similar type of entity related to such an alternative investment vehicle.
SECTION 2. EFFECTIVE DATE.--The effective date of the provisions of this act is July 1, 2018.
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