Senate Bill sb1308c1

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    Florida Senate - 2006                           CS for SB 1308

    By the Committee on Governmental Oversight and Productivity;
    and Senator Garcia




    585-1906-06

  1                      A bill to be entitled

  2         An act relating to a public-records exemption

  3         for alternative investments; amending s.

  4         215.44, F.S.; providing definitions; defining

  5         the term "proprietary confidential business

  6         information" and specifying information that

  7         does not constitute proprietary confidential

  8         business information; creating an exemption

  9         from public-records requirements for

10         proprietary confidential business information

11         held by the State Board of Administration

12         regarding alternative investments; providing

13         for limited duration of the exemption;

14         authorizing the State Board of Administration

15         to use such information in judicial or

16         administrative proceedings under specified

17         circumstances; providing for retroactive

18         application of the exemption; authorizing a

19         proprietor of a record to certify the record as

20         proprietary confidential business information;

21         providing procedures and requirements with

22         respect thereto; authorizing a court to order

23         the release of portions of confidential and

24         exempt records upon making certain findings;

25         providing for future review and repeal under

26         the Open Government Sunset Review Act;

27         providing a statement of public necessity;

28         providing an effective date.

29  

30  Be It Enacted by the Legislature of the State of Florida:

31  

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    Florida Senate - 2006                           CS for SB 1308
    585-1906-06




 1         Section 1.  Paragraph (c) is added to subsection (8) of

 2  section 215.44, Florida Statutes, to read:

 3         215.44  Board of Administration; powers and duties in

 4  relation to investment of trust funds.--

 5         (8)

 6         (c)1.  As used in this paragraph, the term:

 7         a.  "Alternative investment" means an investment by the

 8  State Board of Administration in a private equity fund,

 9  venture fund, hedge fund, or distress fund or a direct

10  investment in a portfolio company through an investment

11  manager.

12         b.  "Alternative investment vehicle" means the limited

13  partnership, limited liability company, or similar legal

14  structure or investment manager through which the State Board

15  of Administration invests in a portfolio company.

16         c.  "Portfolio company" means a corporation or other

17  issuer, any of whose securities are owned by an alternative

18  investment vehicle or the State Board of Administration, and

19  any subsidiary of such corporation or other issuer.

20         d.  "Portfolio positions" means individual investments

21  in portfolio companies which are made by the alternative

22  investment vehicles, including information or specific

23  investment terms associated with any portfolio company

24  investment.

25         e.  "Proprietor" means an alternative investment

26  vehicle, a portfolio company in which the alternative

27  investment vehicle is invested, or an outside consultant,

28  including their respective authorized officers, employees,

29  agents, or successors in interest, which controls or owns

30  information provided to the State Board of Administration.

31  

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    Florida Senate - 2006                           CS for SB 1308
    585-1906-06




 1         f.  "Proprietary confidential business information"

 2  means information that has been designated by the proprietor

 3  when provided to the State Board of Administration as

 4  information that is owned or controlled by a proprietor; that

 5  is intended to be and is treated by the proprietor as private,

 6  the disclosure of which would harm the business operations of

 7  the proprietor and has not been intentionally disclosed by the

 8  proprietor unless pursuant to a private agreement that

 9  provides that the information will not be released to the

10  public except as required by law or legal process or pursuant

11  to law or an order of a court or administrative body; and that

12  concerns:

13         (I)  Trade secrets as defined in s. 688.002.

14         (II)  Information provided to the State Board of

15  Administration regarding a prospective investment in a private

16  equity fund, venture fund, hedge fund, distress fund, or

17  portfolio company which is proprietary to the provider of the

18  information.

19         (III)  Financial statements and auditor reports of an

20  alternative investment vehicle.

21         (IV)  Meeting materials of an alternative investment

22  vehicle relating to financial, operating, or marketing

23  information of the alternative investment vehicle.

24         (V)  Information regarding the portfolio positions in

25  which the alternative investment vehicles invest.

26         (VI)  Capital call and distribution notices to

27  investors of an alternative investment vehicle.

28         (VII)  Alternative investment agreements and related

29  records.

30  

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    Florida Senate - 2006                           CS for SB 1308
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 1         (VIII)  Information concerning investors, other than

 2  the State Board of Administration, in an alternative

 3  investment vehicle.

 4         g.  "Proprietary confidential business information"

 5  does not include:

 6         (I)  The name, address, and vintage year of an

 7  alternative investment vehicle and the identity of the

 8  principals involved in the management of the alternative

 9  investment vehicle.

10         (II)  The dollar amount of the commitment made by the

11  State Board of Administration to each alternative investment

12  vehicle since inception.

13         (III)  The dollar amount and date of cash contributions

14  made by the State Board of Administration to each alternative

15  investment vehicle since inception.

16         (IV)  The dollar amount, on a fiscal-year-end basis, of

17  cash distributions received by the State Board of

18  Administration from each alternative investment vehicle.

19         (V)  The dollar amount, on a fiscal-year-end basis, of

20  cash distributions received by the State Board of

21  Administration plus the remaining value of alternative-vehicle

22  assets that are attributable to the State Board of

23  Administration's investment in each alternative investment

24  vehicle.

25         (VI)  The net internal rate of return of each

26  alternative investment vehicle since inception.

27         (VII)  The investment multiple of each alternative

28  investment vehicle since inception.

29         (VIII)  The dollar amount of the total management fees

30  and costs paid on an annual fiscal-year-end basis by the State

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    Florida Senate - 2006                           CS for SB 1308
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 1  Board of Administration to each alternative investment

 2  vehicle.

 3         (IX)  The dollar amount of cash profit received by the

 4  State Board of Administration from each alternative investment

 5  vehicle on a fiscal-year-end basis.

 6         2.  Proprietary confidential business information held

 7  by the State Board of Administration regarding alternative

 8  investments is confidential and exempt from s. 119.07(1) and

 9  s. 24(a), Art. I of the State Constitution for 10 years after

10  the termination of the alternative investment. This exemption

11  applies to proprietary confidential business information held

12  by the State Board of Administration before, on, or after

13  October 1, 2006.

14         3.  Notwithstanding the provisions of subparagraph 2.,

15  a request to inspect or copy a record under s. 119.07(1) which

16  contains proprietary confidential business information shall

17  be granted if the proprietor of the information fails, within

18  a reasonable period of time after the request is received by

19  the State Board of Administration, to verify the following to

20  the State Board of Administration through a written

21  declaration in the manner provided by s. 92.525:

22         a.  The identity of the proprietary confidential

23  business information and its specific location in the

24  requested record;

25         b.  If the proprietary confidential business

26  information is a trade secret, a verification that it is a

27  trade secret as defined in s. 688.002;

28         c.  That the proprietary confidential business

29  information is intended to be and is treated by the proprietor

30  as private, is the subject of efforts of the proprietor to

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    Florida Senate - 2006                           CS for SB 1308
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 1  maintain its privacy, and is not readily ascertainable or

 2  publicly available from any other source; and

 3         d.  That the disclosure of the proprietary confidential

 4  business information to the public would harm the business

 5  operations of the proprietor.

 6         4.  Any person may petition a court of competent

 7  jurisdiction for an order for the public release of those

 8  portions of any record made confidential and exempt by

 9  subparagraph 2. Any action under this subparagraph must be

10  brought in Leon County, Florida, and the petition or other

11  initial pleading shall be served on the State Board of

12  Administration and, if determinable upon diligent inquiry, on

13  the proprietor of the information sought to be released. In

14  any order for the public release of a record under this

15  subparagraph, the court shall make a finding that the record

16  or portion thereof is not a trade secret as defined in s.

17  688.002, that a compelling public interest is served by the

18  release of the record or portions thereof which exceeds the

19  public necessity for maintaining the confidentiality of such

20  record, and that the release of the record will not cause

21  damage to or adversely affect the interests of the proprietor

22  of the released information, other private persons or business

23  entities, the State Board of Administration, or any trust fund

24  the assets of which are invested by the State Board of

25  Administration.

26         5.  This paragraph is subject to the Open Government

27  Sunset Review Act in accordance with s. 119.15, and shall

28  stand repealed on October 2, 2011, unless reviewed and saved

29  from repeal through reenactment by the Legislature.

30         Section 2.  The Legislature finds that it is a public

31  necessity that proprietary confidential business information

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    Florida Senate - 2006                           CS for SB 1308
    585-1906-06




 1  held by the State Board of Administration regarding

 2  alternative investments be held confidential and exempt from

 3  s. 119.07(1), Florida Statutes, and s. 24(a), Art. I of the

 4  State Constitution for 10 years after the termination of the

 5  alternative investment. Disclosing proprietary confidential

 6  business information, including trade secrets as defined in s.

 7  688.002, Florida Statutes, used in determining how private

 8  equity investments are made or managed by private partnerships

 9  investing assets on behalf of the state Board of

10  Administration would negatively affect the business interests

11  of private partnerships that rely heavily on their information

12  advantage to generate investment returns, and competitor

13  partnerships could gain an unfair competitive advantage if

14  provided access to such information. Maintaining the

15  information advantage of highly skilled private equity

16  investment managers is necessary in order for the State Board

17  of Administration to generate an adequate return from its

18  assets committed to this high-risk segment of the market,

19  since only those managers having a strong information

20  advantage have generated adequate risk-adjusted returns.

21  Research shows that 60 percent of all private equity

22  partnerships have delivered a return less than that of the

23  lower-risk public markets. Only 30 percent of all private

24  equity partnerships have been able to produce the State Board

25  of Administration's required premium over public-market

26  returns to justify incurring the risks associated with these

27  investments. The ninth and tenth deciles of private equity

28  managers are those having a substantial information advantage

29  and they have generated sizable premiums over the public

30  markets, with net returns of 19.4 percent and 29.7 percent,

31  respectively. The Legislature finds that the exemption or

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    Florida Senate - 2006                           CS for SB 1308
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 1  proprietary confidential business information used in or

 2  implying how private equity investments are made or managed is

 3  necessary for the effective and efficient administration of

 4  the State Board of Administration's asset-management program.

 5  Assets of the Florida Retirement System must grow rapidly in

 6  order to keep pace with growth in the system's liabilities and

 7  to manage the costs of employer contributions. In order to

 8  meet its investment objectives, the State Board of

 9  Administration must invest in diversified asset types,

10  including high-return, high-risk private equity partnerships.

11  Those partnerships that have and are able to maintain a

12  substantial information advantage over their competitors are

13  likely to provide an adequate return. The release of

14  proprietary confidential business information, including trade

15  secrets, revealing how private equity investments are made or

16  managed could result in inadequate returns and ultimately

17  frustrate attainment of the investment objective of the State

18  Board of Administration, subsequently increasing contribution

19  costs for employers in the Florida Retirement System and

20  lowering the system's funded ratio. It is the Legislature's

21  intent to allow the public access to sufficient information in

22  order to be informed regarding the alternative investments of

23  the State Board of Administration and to balance the public's

24  right to information against the right of private business

25  entities to be protected from harmful disclosure of

26  confidential and exempt proprietary confidential business

27  information, the disclosure of which would injure them in the

28  marketplace, impair the ability of the State Board of

29  Administration to invest in the best performing alternative

30  investment vehicles, and diminish investment earnings in the

31  Florida Retirement System Trust Fund. It is also the

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    Florida Senate - 2006                           CS for SB 1308
    585-1906-06




 1  Legislature's intent to establish consistency with regard to

 2  the classification of information relating to alternative

 3  investments by the State Board of Administration as either

 4  confidential or suitable for public disclosure. In finding

 5  that the public-records exemption created by this act is a

 6  public necessity, the Legislature finds that the public and

 7  private harm in disclosing proprietary confidential business

 8  information relating to alternative investments by the State

 9  Board of Administration significantly outweighs any public

10  benefit derived from disclosure; that the exemption created by

11  this act will enhance the ability of the State Board of

12  Administration to fulfill its duties as an investment

13  fiduciary by making it more effective and competitive in the

14  marketplace as an investor that is able to gain access to the

15  best alternative investment vehicles; and that the public's

16  ability to be informed regarding the alternative investments

17  made by the State Board of Administration is preserved by the

18  disclosure of information excepted from the created exemption.

19         Section 3.  This act shall take effect October 1, 2006.

20  

21          STATEMENT OF SUBSTANTIAL CHANGES CONTAINED IN
                       COMMITTEE SUBSTITUTE FOR
22                             SB 1308

23                                 

24  Eliminates the option to extend the exemption for an
    additional 10-year period.
25  
    Clarifies that the confidential and exempt information is
26  protected upon receipt by the agency while still requiring
    verification that the information still meets the definition
27  of "proprietary confidential business information" upon
    receipt of a public records request for the information.
28  

29  

30  

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