HB 7161

1	A bill to be entitled
2	An act relating to a public records exemption for
3	alternative investments; amending s. 215.44, F.S.;
4	providing definitions; defining "proprietary confidential
5	business information" and specifying information which
6	does not constitute proprietary confidential business
7	information; creating an exemption from public records
8	requirements for proprietary confidential business
9	information held by the State Board of Administration
10	regarding alternative investments; providing for limited
11	duration of the exemption; providing for retroactive
12	application of the exemption; authorizing the inspection
13	and copying of confidential and exempt records if the
14	proprietor of the information fails to verify that a
15	record contains certain information within a specified
16	period of time; authorizing a court to order the release
17	of confidential and exempt records upon making certain
18	findings; providing for future review and repeal;
19	providing a statement of public necessity; providing an
20	effective date.
21
22	Be It Enacted by the Legislature of the State of Florida:
23
24	Section 1.  Paragraph (c) is added to subsection (8) of
25	section 215.44, Florida Statutes, to read:
26	215.44  Board of Administration; powers and duties in
27	relation to investment of trust funds.--
28	(8)
29	(c)1.  As used in this paragraph, the term:
30	a.  "Alternative investment" means an investment by the
31	State Board of Administration in a private equity fund, venture
32	fund, hedge fund, or distress fund or a direct investment in a
33	portfolio company through an investment manager.
34	b.  "Alternative investment vehicle" means the limited
35	partnership, limited liability company, or similar legal
36	structure or investment manager through which the State Board of
37	Administration invests in a portfolio company.
38	c.  "Portfolio company" means a corporation or other
39	issuer, any of whose securities are owned by an alternative
40	investment vehicle or the State Board of Administration and any
41	subsidiary of such corporation or other issuer.
42	d.  "Portfolio positions" means individual investments in
43	portfolio companies which are made by the alternative investment
44	vehicles, including information or specific investment terms
45	associated with any portfolio company investment.
46	e.  "Proprietor" means an alternative investment vehicle, a
47	portfolio company in which the alternative investment vehicle is
48	invested, or an outside consultant, including the respective
49	authorized officers, employees, agents, or successors in
50	interest, which controls or owns information provided to the
51	State Board of Administration.
52	f.  "Proprietary confidential business information" means
53	information that has been designated by the proprietor when
54	provided to the State Board of Administration as information
55	that is owned or controlled by a proprietor; that is intended to
56	be and is treated by the proprietor as private, the disclosure
57	of which would harm the business operations of the proprietor
58	and has not been intentionally disclosed by the proprietor
59	unless pursuant to a private agreement that provides that the
60	information will not be released to the public except as
61	required by law or legal process, or pursuant to law or an order
62	of a court or administrative body; and that concerns:
63	(I)  Trade secrets as defined in s. 688.002.
64	(II)  Information provided to the State Board of
65	Administration regarding a prospective investment in a private
66	equity fund, venture fund, hedge fund, distress fund, or
67	portfolio company which is proprietary to the provider of the
68	information.
69	(III)  Financial statements and auditor reports of an
70	alternative investment vehicle.
71	(IV)  Meeting materials of an alternative investment
72	vehicle relating to financial, operating, or marketing
73	information of the alternative investment vehicle.
74	(V)  Information regarding the portfolio positions in which
75	the alternative investment vehicles invest.
76	(VI)  Capital call and distribution notices to investors of
77	an alternative investment vehicle.
78	(VII)  Alternative investment agreements and related
79	records.
80	(VIII)  Information concerning investors, other than the
81	State Board of Administration, in an alternative investment
82	vehicle.
83	g.  "Proprietary confidential business information" does
84	not include:
85	(I)  The name, address, and vintage year of an alternative
86	investment vehicle and the identity of the principals involved
87	in the management of the alternative investment vehicle.
88	(II)  The dollar amount of the commitment made by the State
89	Board of Administration to each alternative investment vehicle
90	since inception.
91	(III)  The dollar amount and date of cash contributions
92	made by the State Board of Administration to each alternative
93	investment vehicle since inception.
94	(IV)  The dollar amount, on a fiscal-year-end basis, of
95	cash distributions received by the State Board of Administration
96	from each alternative investment vehicle.
97	(V)  The dollar amount, on a fiscal-year-end basis, of cash
98	distributions received by the State Board of Administration plus
99	the remaining value of alternative-vehicle assets that are
100	attributable to the State Board of Administration's investment
101	in each alternative investment vehicle.
102	(VI)  The net internal rate of return of each alternative
103	investment vehicle since inception.
104	(VII)  The investment multiple of each alternative
105	investment vehicle since inception.
106	(VIII)  The dollar amount of the total management fees and
107	costs paid on an annual fiscal-year-end basis by the State Board
108	of Administration to each alternative investment vehicle.
109	(IX)  The dollar amount of cash profit received by the
110	State Board of Administration from each alternative investment
111	vehicle on a fiscal-year-end basis.
112	2.  Proprietary confidential business information held by
113	the State Board of Administration regarding alternative
114	investments is confidential and exempt from s. 119.07(1) and s.
115	24(a), Art. I of the State Constitution for 10 years after the
116	termination of the alternative investment. This exemption
117	applies to proprietary confidential business information held by
118	the State Board of Administration before, on, or after October
119	1, 2006.
120	3.  Notwithstanding the provisions of subparagraph 2., a
121	request to inspect or copy a record under s. 119.07(1) which
122	contains proprietary confidential business information shall be
123	granted if the proprietor of the information fails, within a
124	reasonable period of time after the request is received by the
125	State Board of Administration, to verify the following to the
126	State Board of Administration through a written declaration in
127	the manner provided by s. 92.525:
128	a.  The identity of the proprietary confidential business
129	information and its specific location in the requested record;
130	b.  If the proprietary confidential business information is
131	a trade secret, a verification that it is a trade secret as
132	defined in s. 688.002;
133	c.  That the proprietary confidential business information
134	is intended to be and is treated by the proprietor as private,
135	is the subject of efforts of the proprietor to maintain its
136	privacy, and is not readily ascertainable or publicly available
137	from any other source; and
138	d.  That the disclosure of the proprietary confidential
139	business information to the public would harm the business
140	operations of the proprietor.
141	4.  Any person may petition a court of competent
142	jurisdiction for an order for the public release of those
143	portions of any record made confidential and exempt by
144	subparagraph 2. Any action under this subparagraph must be
145	brought in Leon County, Florida, and the petition or other
146	initial pleading shall be served on the State Board of
147	Administration and, if determinable upon diligent inquiry, on
148	the proprietor of the information sought to be released. In any
149	order for the public release of a record under this
150	subparagraph, the court shall make a finding that the record or
151	portion thereof is not a trade secret as defined in s. 688.002,
152	that a compelling public interest is served by the release of
153	the record or portions thereof which exceed the public necessity
154	for maintaining the confidentiality of such record, and that the
155	release of the record will not cause damage to or adversely
156	affect the interests of the proprietor of the released
157	information, other private persons or business entities, the
158	State Board of Administration, or any trust fund, the assets of
159	which are invested by the State Board of Administration.
160	5.  This paragraph is subject to the Open Government Sunset
161	Review Act in accordance with s. 119.15 and shall stand repealed
162	on October 2, 2011, unless reviewed and saved from repeal
163	through reenactment by the Legislature.
164	Section 2.  The Legislature finds that it is a public
165	necessity that proprietary confidential business information
166	held by the State Board of Administration regarding alternative
167	investments be held confidential and exempt from s. 119.07(1),
168	Florida Statutes, and s. 24(a), Art. I of the State Constitution
169	for 10 years after the termination of the alternative
170	investment. Disclosing proprietary confidential business
171	information, including trade secrets as defined in s. 688.002,
172	Florida Statutes, used in determining how private equity
173	investments are made or managed by private partnerships
174	investing assets on behalf of the State Board of Administration
175	would negatively affect the business interests of private
176	partnerships that rely heavily on their information advantage to
177	generate investment returns, and competitor partnerships could
178	gain an unfair competitive advantage if provided access to such
179	information. Maintaining the information advantage of highly
180	skilled private equity investment managers is necessary in order
181	for the State Board of Administration to generate an adequate
182	return from its assets committed to this high-risk segment of
183	the market, since only those managers having a strong
184	information advantage have generated adequate risk-adjusted
185	returns. Research shows that 60 percent of all private equity
186	partnerships have delivered a return less than that of the
187	lower-risk public markets. Only 30 percent of all private equity
188	partnerships have been able to produce the State Board of
189	Administration's required premium over public-market returns to
190	justify incurring the risks associated with these investments.
191	The ninth and tenth deciles of private equity managers are those
192	having a substantial information advantage and they have
193	generated sizable premiums over the public markets, with net
194	returns of 19.4 percent and 29.7 percent, respectively. The
195	Legislature finds that the exemption of proprietary confidential
196	business information used in or implying how private equity
197	investments are made or managed is necessary for the effective
198	and efficient administration of the State Board of
199	Administration's asset-management program. Assets of the Florida
200	Retirement System must grow rapidly in order to keep pace with
201	growth in the system's liabilities and to manage the costs of
202	employer contributions. In order to meet its investment
203	objectives, the State Board of Administration must invest in
204	diversified asset types, including high-return, high-risk
205	private equity partnerships. Those partnerships that have and
206	are able to maintain a substantial information advantage over
207	their competitors are likely to provide an adequate return. The
208	release of proprietary confidential business information,
209	including trade secrets, revealing how private equity
210	investments are made or managed could result in inadequate
211	returns and ultimately frustrate attainment of the investment
212	objective of the State Board of Administration, subsequently
213	increasing contribution costs for employers in the Florida
214	Retirement System and lowering the system's funded ratio. It is
215	the Legislature's intent to allow the public access to
216	sufficient information in order to be informed regarding the
217	alternative investments of the State Board of Administration and
218	to balance the public's right to information against the right
219	of private business entities to be protected from harmful
220	disclosure of confidential and exempt proprietary confidential
221	business information, the disclosure of which would injure them
222	in the marketplace, impair the ability of the State Board of
223	Administration to invest in the best performing alternative
224	investment vehicles, and diminish investment earnings in the
225	Florida Retirement System Trust Fund. It is also the
226	Legislature's intent to establish consistency with regard to the
227	classification of information relating to alternative
228	investments by the State Board of Administration as either
229	confidential or suitable for public disclosure. In finding that
230	the public records exemption created by this act is a public
231	necessity, the Legislature finds that the public and private
232	harm in disclosing proprietary confidential business information
233	relating to alternative investments by the State Board of
234	Administration significantly outweighs any public benefit
235	derived from disclosure; that the exemption created by this act
236	will enhance the ability of the State Board of Administration to
237	fulfill its duties as an investment fiduciary by making it more
238	effective and competitive in the marketplace as an investor that
239	is able to gain access to the best alternative investment
240	vehicles; and that the public's ability to be informed regarding
241	the alternative investments made by the State Board of
242	Administration is preserved by the disclosure of information
243	excepted from the created exemption.
244	Section 3.  This act shall take effect October 1, 2006.

CODING: Words stricken are deletions; words underlined are additions.