HB 7161

CS

CHAMBER ACTION

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

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