California’s Public Disclosure of Private Fund Investments

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One of the challenges with having a government pension plan investor is the potential disclosure obligations under the states’ sunshine laws. A similar problem exists with Securities and Exchange Commission. The SEC is subject to the Freedom of Information Act and exam information is potentially subject to some level of disclosure.

But the state level equivalents of FOIA are worded a bit differently. You also have the situation where the state’s pension fund is an investor. So the performance of an investment is somewhat relevant to the public, since public tax dollars are at work.

A recent ruling came out of California. That case involves the efforts by a news publication to obtain individual private fund information for investments made by the Regents of the University of California. Reuters made the request under the California Public Records Act, Gov. Code, § 6250 et seq. The Regents refused to provide the information. Reuters sued.

The Superior Court ruled in favor of Reuters and found that the Regents were required to use “objectively reasonable efforts” to obtain individual fund information for the Regents’ current investments even though the Regents had not prepared, owned, used, or retained this fund information.

The First District Court of Appeal reversed in Regents of the University of California v Superior Court, (Cal. App. 1st Dist. Dec. 19, 2013).  The Court held that

unless a writing is related “to the conduct of the public’s business” and is “prepared, owned, used, or retained by” a public entity, it is not a public record under the Public Records Act, and its disclosure would not be governed by the Act.

Clearly, the private fund information is related to the public’s business because tax dollars are being invested.

The decision made in Coalition of University Employees v. The Regents of the University of California (Super. Ct. Alameda County, 2003, No. RG03-089302) (the CUE Case) made it clear that private fund reporting on investments by the Regents is subject to California’s Public Records Act. That case involved a request for the internal rate of return for 94 separate private fund investments.

As a result, some of the fund managers stopped reporting to the Regents.

Subsequently, the Public Records Act was amended and California Government Code Section 6254.26 carves out specific pieces of information about private funds. Although the fund documents, meeting materials and financial statements are not part of the public record, fund return information is still within the bounds of disclosure.

Some of the Regents’ fund managers provided minimal information because they did not want it disclosed to the public. In the discussion, the Court makes it clear that it is not ruling on whether it is proper for private fund managers to withhold the information or whether the Regents should continue to do business with private fund managers who withhold information because of the sunshine law.

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