April 22, 2019
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_h1345__
HB 1345

1
A bill to be entitled
2An act relating to the State Board of Administration;
3amending s. 215.44, F.S.; providing for additional,
4appointed members of the board; providing for
5qualifications, terms, responsibilities, and status of
6board appointees; providing meeting and reporting
7requirements; specifying training requirements for board
8members; requiring the board to create an audit committee
9for certain purposes; specifying audit committee
10membership and member qualifications, terms, requirements,
11and status; specifying committee duties and
12responsibilities; providing committee authority;
13specifying response requirements of the executive director
14upon receipt of reports or recommendations from the
15committee; requiring the committee to recommend
16appointment of a Chief of Internal Audit; providing for
17appointment and powers and duties of the Chief of Internal
18Audit; requiring the board to procure regular external
19audits of the board; specifying audit requirements;
20deleting examination and reporting requirements of the
21Office of Program Policy Analysis and Government
22Accountability; amending s. 215.441, F.S.; requiring the
23board to appoint an executive director for certain
24purposes; specifying knowledge and experience requirements
25for and status of the executive director; amending s.
26215.442, F.S.; revising duties of the executive director;
27amending s. 215.444, F.S.; increasing membership of the
28Investment Advisory Council; providing additional duties
29of the council; amending s. 215.475, F.S.; revising
30investment policy statement requirements; creating s.
31215.476, F.S.; providing definitions; requiring the board
32to adopt standards of conduct for external investment
33managers; providing for voiding certain contracts for
34violations of a standard of conduct; amending ss. 121.153
35and 215.47, F.S.; correcting cross-references; providing
36an effective date.
37
38Be It Enacted by the Legislature of the State of Florida:
39
40     Section 1.  Section 215.44, Florida Statutes, is amended to
41read:
42     215.44  State Board of Administration; powers and duties in
43relation to investment of trust funds.-
44     (1)  Except when otherwise specifically provided by the
45State Constitution and subject to any limitations of the trust
46agreement relating to a trust fund, the Board of Trustees of the
47State Board of Administration, hereinafter sometimes referred to
48as "board," or "board of trustees," composed of the Governor as
49chair, the Chief Financial Officer, and the Attorney General,
50and two additional members appointed by the Governor as provided
51in subsection (2), shall invest all the funds in the System
52Trust Fund, as defined in s. 121.021(36), and all other funds
53specifically required by law to be invested by the board
54pursuant to ss. 215.44-215.53 to the fullest extent that is
55consistent with the cash requirements, trust agreement, and
56investment objectives of the fund. Notwithstanding any other law
57to the contrary, the State Board of Administration may invest
58any funds of any state agency or any unit of local government
59pursuant to the terms of a trust agreement with the head of the
60state agency or the governing body of the unit of local
61government, which trust agreement shall govern the investment of
62such funds, provided that the board shall approve the
63undertaking of such investment before execution of the trust
64agreement by the State Board of Administration. The funds and
65the earnings therefrom are exempt from the service charge
66imposed by s. 215.20. As used in this subsection, the term
67"state agency" has the same meaning as that provided in s.
68216.001, and the terms "governing body" and "unit of local
69government" have the same meaning as that provided in s.
70218.403.
71     (2)(a)  The Governor shall appoint two members to the board
72of trustees as follows:
73     1.  One appointee must have extensive experience in
74managing or overseeing investment portfolios valued at $1
75billion or more in any two or more of the following areas:
76domestic equities, international equities, fixed-income
77securities, cash management, alternative investments, strategic
78investments, or real estate investment trusts.
79     2.  One appointee must have extensive experience in the
80auditing of large private or institutional investment portfolios
81with a value of at least $1 billion. Such appointee must also be
82a participant or beneficiary of the system trust fund.
83     (b)  Appointments shall be for a term of 4 years, and
84appointees shall serve at the pleasure of the Governor. A
85vacancy shall be filled within 60 days after the occurrence of
86the vacancy.
87     (c)  Appointees shall have the same fiduciary
88responsibilities as elected members of the board of trustees.
89     (d)  Appointees shall undergo fiduciary training as
90required by the board.
91     (e)  Appointees shall be considered state officers for
92purposes of s. 112.3145.
93     (f)  Appointees shall be considered agents of the state for
94purposes of s. 768.28.
95     (3)(2)(a)  The board shall have the power to make
96purchases, sales, exchanges, investments, and reinvestments for
97and on behalf of the funds referred to in subsection (1), and it
98shall be the duty of the board to see that moneys invested under
99the provisions of ss. 215.44-215.53 are at all times handled in
100the best interests of the state.
101     (b)  In exercising investment authority pursuant to s.
102215.47, the board may retain investment advisers or managers, or
103both, external to in-house staff, to assist the board in
104carrying out the power specified in paragraph (a).
105     (c)  The board shall meet at least monthly, and receive
106reports from the audit committee, investment advisory committee,
107inspector general, general counsel, executive director, and such
108other persons or entities as the board may require about the
109financial status, operations, and investment activities of the
110board.
111     (d)  Members of the board shall undergo fiduciary training
112on an annual basis, based on recommendations by the executive
113director.
114     (4)(a)  The board shall create an audit committee to assist
115the board in fulfilling its oversight responsibilities in the
116areas of financial reporting, internal controls, risk
117assessment, audit processes, and compliance with laws and rules.
118The audit committee shall consist of six members who shall
119annually elect a chair. The Governor, the Chief Financial
120Officer, and the Attorney General shall each appoint two members
121of the audit committee. Each audit committee member shall be
122independent and free from any relationship that would interfere
123with the exercise of his or her independent judgment as a member
124of the committee. Each committee member shall serve a term of 4
125years at the pleasure of his or her appointing board member.
126Persons appointed to the audit committee shall have extensive
127experience in auditing institutional investment portfolios and
128shall undergo fiduciary training as required by the board.
129Members of the committee are state officers for purposes of s.
130112.3145.
131     (b)  The audit committee shall independently and
132objectively monitor on an ongoing basis the board's processes
133for financial reporting, internal controls, risk assessment, and
134compliance with laws and rules. The audit committee shall meet
135monthly. The audit committee shall direct the audit efforts of
136the board's independent external auditors and the board's
137internal audit staff. The audit committee shall report, at least
138monthly, all findings and recommendations to the executive
139director and the board.
140     (c)  The audit committee may:
141     1.  Seek any information it requires from board employees,
142who shall provide such information upon request, and from third
143parties.
144     2.  Meet with the investment advisory council, the investor
145council, board employees, or external auditors as necessary.
146     3.  Review and recommend approval of the budget for the
147Office of Internal Audit to the board.
148     4.  Retain outside accountants, consultants, attorneys, or
149others approved by the board to assist in the conduct of an
150audit, review, or special investigation as directed by the
151board.
152     (d)  Upon receipt of any audit report or recommendation
153from the committee, the executive director shall, within 30
154days, respond in writing and shall indicate whether action will
155be taken. The executive director shall specify what action shall
156be taken and the expected timeframe for such action or the
157reasons for not taking action. A copy of the executive
158director's written response shall be provided to the committee
159and the board.
160     (e)  The committee shall recommend a Chief of Internal
161Audit, who shall be appointed by the board and who shall have
162those powers and duties set by the committee and approved by the
163board. The Chief of Internal Audit shall report functionally to
164the committee and administratively to the executive director.
165     (5)(3)  Notwithstanding any law to the contrary, all
166investments made by the State Board of Administration pursuant
167to ss. 215.44-215.53 shall be subject to the restrictions and
168limitations contained in s. 215.47.
169     (6)(4)  The board shall prepare and approve an operating
170budget each fiscal year consistent with the provisions of
171chapter 216. The approved operating budget shall be submitted to
172the legislative appropriation committees and the Executive
173Office of the Governor prior to July 1 of each year.
174     (7)(5)  On or before January 1 of each year, the board
175shall provide to the Legislature a report including the
176following items for each fund which, by law, has been entrusted
177to the board for investment:
178     (a)  A schedule of the annual beginning and ending asset
179values and changes and sources of changes in the asset value of:
180     1.  Each fund managed by the board; and
181     2.  Each asset class and portfolio within the Florida
182Retirement System Trust Fund.
183     (b)  A description of the investment policy for each fund,
184and changes in investment policy for each fund since the
185previous annual report.
186     (c)  A description of compliance with investment strategy
187for each fund.
188     (d)  A description of the risks inherent in investing in
189financial instruments of the major asset classes held in the
190fund.
191     (e)  A summary of the type and amount of technology and
192growth investments held by each fund.
193     (f)  Other information deemed of interest by the executive
194director of the board.
195     (8)(6)  The board, on the recommendation of the audit
196committee, shall procure annual external audits of the State
197Board of Administration, which must include the financial
198condition, compliance, internal controls, and operations of the
199board. The board shall submit audit reports to the President of
200the Senate and Speaker of the House of Representatives within 15
201days after completion of the audit. The Office of Program Policy
202Analysis and Government Accountability shall examine the board's
203management of investments every 2 years. The Office of Program
204Policy Analysis and Government Accountability shall submit such
205reports to the board, the President of the Senate, and the
206Speaker of the House of Representatives and their designees.
207     (9)(7)  Investment and debt purchasing procedures and
208contracts of funds held in trust by the State Board of
209Administration, whether directly or incidentally related to the
210investment or debt transactions, are exempt from the provisions
211of chapter 287.
212     (10)(8)(a)  In order to effectively and efficiently
213administer the real estate investment program of the State Board
214of Administration, the Legislature finds a public necessity in
215protecting specified records of the board. Accordingly, records
216and information relating to acquiring, hypothecating, or
217disposing of real property or related personal property or
218mortgage interests in same, as well as interest in collective
219real estate investment funds, publicly traded securities, or
220private placement investments, are confidential and exempt from
221s. 119.07(1) in order to protect proprietary information
222requisite to the board's ability to transact arms length
223negotiations necessary to successfully compete in the real
224estate investment market. All reports and documents relating to
225value, offers, counteroffers, or negotiations are confidential
226and exempt from s. 119.07(1) until closing is complete and all
227funds have been disbursed. Reports and documents relating to
228tenants, leases, contracts, rent rolls, and negotiations in
229progress are confidential and exempt from the provisions of s.
230119.07(1) until the executive director determines that releasing
231such information would not be detrimental to the interests of
232the board and would not cause a conflict with the fiduciary
233responsibilities of the State Board of Administration.
234     (b)  In order to effectively and efficiently administer the
235investment programs of the board, the Legislature finds a public
236necessity in protecting records other than those described in
237paragraph (a). Accordingly, records and other information
238relating to investments made by the board pursuant to its
239constitutional and statutory investment duties and
240responsibilities are confidential and exempt from s. 119.07(1)
241until 30 days after completion of an investment transaction.
242However, if in the opinion of the executive director of the
243board it would be detrimental to the financial interests of the
244board or would cause a conflict with the fiduciary
245responsibilities of the board, information concerning service
246provider fees may be maintained as confidential and exempt from
247s. 119.07(1) until 6 months after negotiations relating to such
248fees have been terminated. This exemption prevents the use of
249confidential internal investment decisions of the State Board of
250Administration for improper personal gain.
251     (c)1.  As used in this paragraph, the term:
252     a.  "Alternative investment" means an investment by the
253State Board of Administration in a private equity fund, venture
254fund, hedge fund, or distress fund or a direct investment in a
255portfolio company through an investment manager.
256     b.  "Alternative investment vehicle" means the limited
257partnership, limited liability company, or similar legal
258structure or investment manager through which the State Board of
259Administration invests in a portfolio company.
260     c.  "Portfolio company" means a corporation or other
261issuer, any of whose securities are owned by an alternative
262investment vehicle or the State Board of Administration and any
263subsidiary of such corporation or other issuer.
264     d.  "Portfolio positions" means individual investments in
265portfolio companies which are made by the alternative investment
266vehicles, including information or specific investment terms
267associated with any portfolio company investment.
268     e.  "Proprietor" means an alternative investment vehicle, a
269portfolio company in which the alternative investment vehicle is
270invested, or an outside consultant, including the respective
271authorized officers, employees, agents, or successors in
272interest, which controls or owns information provided to the
273State Board of Administration.
274     f.  "Proprietary confidential business information" means
275information that has been designated by the proprietor when
276provided to the State Board of Administration as information
277that is owned or controlled by a proprietor; that is intended to
278be and is treated by the proprietor as private, the disclosure
279of which would harm the business operations of the proprietor
280and has not been intentionally disclosed by the proprietor
281unless pursuant to a private agreement that provides that the
282information will not be released to the public except as
283required by law or legal process, or pursuant to law or an order
284of a court or administrative body; and that concerns:
285     (I)  Trade secrets as defined in s. 688.002.
286     (II)  Information provided to the State Board of
287Administration regarding a prospective investment in a private
288equity fund, venture fund, hedge fund, distress fund, or
289portfolio company which is proprietary to the provider of the
290information.
291     (III)  Financial statements and auditor reports of an
292alternative investment vehicle.
293     (IV)  Meeting materials of an alternative investment
294vehicle relating to financial, operating, or marketing
295information of the alternative investment vehicle.
296     (V)  Information regarding the portfolio positions in which
297the alternative investment vehicles invest.
298     (VI)  Capital call and distribution notices to investors of
299an alternative investment vehicle.
300     (VII)  Alternative investment agreements and related
301records.
302     (VIII)  Information concerning investors, other than the
303State Board of Administration, in an alternative investment
304vehicle.
305     g.  "Proprietary confidential business information" does
306not include:
307     (I)  The name, address, and vintage year of an alternative
308investment vehicle and the identity of the principals involved
309in the management of the alternative investment vehicle.
310     (II)  The dollar amount of the commitment made by the State
311Board of Administration to each alternative investment vehicle
312since inception.
313     (III)  The dollar amount and date of cash contributions
314made by the State Board of Administration to each alternative
315investment vehicle since inception.
316     (IV)  The dollar amount, on a fiscal-year-end basis, of
317cash distributions received by the State Board of Administration
318from each alternative investment vehicle.
319     (V)  The dollar amount, on a fiscal-year-end basis, of cash
320distributions received by the State Board of Administration plus
321the remaining value of alternative-vehicle assets that are
322attributable to the State Board of Administration's investment
323in each alternative investment vehicle.
324     (VI)  The net internal rate of return of each alternative
325investment vehicle since inception.
326     (VII)  The investment multiple of each alternative
327investment vehicle since inception.
328     (VIII)  The dollar amount of the total management fees and
329costs paid on an annual fiscal-year-end basis by the State Board
330of Administration to each alternative investment vehicle.
331     (IX)  The dollar amount of cash profit received by the
332State Board of Administration from each alternative investment
333vehicle on a fiscal-year-end basis.
334     2.  Proprietary confidential business information held by
335the State Board of Administration regarding alternative
336investments is confidential and exempt from s. 119.07(1) and s.
33724(a), Art. I of the State Constitution for 10 years after the
338termination of the alternative investment. This exemption
339applies to proprietary confidential business information held by
340the State Board of Administration before, on, or after October
3411, 2006.
342     3.  Notwithstanding the provisions of subparagraph 2., a
343request to inspect or copy a record under s. 119.07(1) which
344contains proprietary confidential business information shall be
345granted if the proprietor of the information fails, within a
346reasonable period of time after the request is received by the
347State Board of Administration, to verify the following to the
348State Board of Administration through a written declaration in
349the manner provided by s. 92.525:
350     a.  That the requested record contains proprietary
351confidential business information and the specific location of
352such information within the record;
353     b.  If the proprietary confidential business information is
354a trade secret, a verification that it is a trade secret as
355defined in s. 688.002;
356     c.  That the proprietary confidential business information
357is intended to be and is treated by the proprietor as private,
358is the subject of efforts of the proprietor to maintain its
359privacy, and is not readily ascertainable or publicly available
360from any other source; and
361     d.  That the disclosure of the proprietary confidential
362business information to the public would harm the business
363operations of the proprietor.
364     4.  Any person may petition a court of competent
365jurisdiction for an order for the public release of those
366portions of any record made confidential and exempt by
367subparagraph 2. Any action under this subparagraph must be
368brought in Leon County, Florida, and the petition or other
369initial pleading shall be served on the State Board of
370Administration and, if determinable upon diligent inquiry, on
371the proprietor of the information sought to be released. In any
372order for the public release of a record under this
373subparagraph, the court shall make a finding that the record or
374portion thereof is not a trade secret as defined in s. 688.002,
375that a compelling public interest is served by the release of
376the record or portions thereof which exceed the public necessity
377for maintaining the confidentiality of such record, and that the
378release of the record will not cause damage to or adversely
379affect the interests of the proprietor of the released
380information, other private persons or business entities, the
381State Board of Administration, or any trust fund, the assets of
382which are invested by the State Board of Administration.
383     5.  This paragraph is subject to the Open Government Sunset
384Review Act in accordance with s. 119.15 and shall stand repealed
385on October 2, 2011, unless reviewed and saved from repeal
386through reenactment by the Legislature.
387     (11)(9)  In connection with any investment pursuant to s.
388215.47, the State Board of Administration may enter into an
389indemnification agreement provided that, under any such
390agreement, the liability of the State Board of Administration is
391limited to the amount of its investment and the State Board of
392Administration is not obligated to indemnify against loss caused
393by the negligence or fault of the person seeking
394indemnification.
395     Section 2.  Section 215.441, Florida Statutes, is amended
396to read:
397     215.441  State Board of Administration; appointment of
398executive director.-
399     (1)  The State Board of Administration shall appoint an
400executive director to manage and invest funds as directed by the
401board. The executive director must have proven knowledge and
402expertise in overseeing institutional investment portfolios. The
403executive director shall have extensive experience in any two or
404more of the following areas: domestic equities, international
405equities, fixed-income securities, cash management, alternative
406investments, strategic investments, or real estate investment
407trusts. The board may set additional requirements for
408appointment.
409     (2)  The appointment of the executive director of the State
410Board of Administration shall be subject to the approval by a
411majority vote of the Board of Trustees of the State Board of
412Administration, and the Governor must vote on the prevailing
413side. Such appointment must be reaffirmed in the same manner by
414the board of trustees on an annual basis.
415     (3)  The executive director is a state officer for purposes
416of s. 112.3145.
417     Section 3.  Subsection (1) of section 215.442, Florida
418Statutes, is amended to read:
419     215.442  Executive director; reporting requirements; public
420meeting.-
421     (1)  Beginning October 2007 and quarterly thereafter, The
422executive director shall present to the Board of Trustees of the
423State Board of Administration a quarterly report to include the
424following:
425     (a)  The name of each equity in which the State Board of
426Administration has invested for the quarter.
427     (b)  The industry category of each equity.
428     (c)  The type and value of assets that have been downgraded
429during the preceding quarter.
430     Section 4.  Subsection (1) of section 215.444, Florida
431Statutes, is amended to read:
432     215.444  Investment Advisory Council.-
433     (1)  There is created a nine-member six-member Investment
434Advisory Council to review the investments made by the staff of
435the State Board of Administration and to make recommendations to
436the board regarding investment policy, strategy, and procedures.
437The council shall annually recommend asset allocations for funds
438held by the board. The council shall review and recommend new
439asset classes and shall review and recommend all new investments
440in a single security valued at over $100 million, except for
441direct obligations of the Federal Government, to be considered
442by the board.
443     Section 5.  Section 215.475, Florida Statutes, is amended
444to read:
445     215.475  Investment policy statement.-
446     (1)  In making investments for the System Trust Fund
447pursuant to ss. 215.44-215.53, the board shall make no
448investment which is not in conformance with the Florida
449Retirement System Defined Benefit Plan Investment Policy
450Statement, hereinafter referred to as "the IPS," as developed by
451the executive director and the Investment Advisory Council and
452approved by the board. The IPS must include, among other items,
453the investment objectives of the System Trust Fund; permitted
454types of securities in which the board may invest; and
455evaluation criteria necessary to measure the investment
456performance of the fund. As required from time to time, the
457executive director of the board may present recommended changes
458in the IPS to the board for approval.
459     (2)  Prior to any recommended changes in the IPS being
460presented to the board, the executive director of the board
461shall present such changes to the Investment Advisory Council
462for review. The council shall present the results of its review
463to the board prior to the board's final approval of the IPS or
464changes in the IPS.
465     Section 6.  Section 215.476, Florida Statutes, is created
466to read:
467     215.476  Ethics and disclosure requirements for external
468investment managers.-
469     (1)  For purposes of this section, the term:
470     (a)  "External investment manager" includes all types of
471investment partners, including general partners, managers,
472investment managers, and sponsors of hedge funds, private equity
473funds, limited liability entities, and real estate funds, as
474well as investment managers, whether through a separate account
475or commingled trust, retained pursuant to a contract.
476     (b)  "Placement agent" means any employee or third-party
477intermediary that is directly or indirectly hired, used,
478retained, compensated, or otherwise given anything having
479monetary value or benefit, tangible or intangible, by an
480external investment manager to assist the investment firm in
481securing investment commitments or other business from the board
482and includes, but is not limited to, all placement agents,
483lobbyists, solicitors, brokers, finders, third-party marketers,
484or any other entities or persons engaged by an external
485investment manager or its affiliates, directly or indirectly,
486for the purpose of marketing or securing investor commitments or
487other business.
488     (2)  The board by rule shall adopt standards of conduct
489applicable to external investment managers retained pursuant to
490s. 215.44(3)(b). Such standards shall include disclosures of
491conflicts of interest; compensation arrangements or agreements
492with any placement agent; a description of services performed by
493the placement agent; resumes of officers, partners, or
494principals of the placement agent; and any direct or indirect
495pecuniary interests the external investment manager has with any
496placement agent.
497     (3)  A contract under which an external investment manager
498renders financial services or advice to the board is voidable by
499the board if the external investment manager violates a standard
500of conduct adopted under this section.
501     Section 7.  Paragraph (a) of subsection (2) of section
502121.153, Florida Statutes, is amended to read:
503     121.153  Investments in institutions doing business in or
504with Northern Ireland.-
505     (2)(a)  Notwithstanding any other provision of law, and
506consistent with the investment policy set forth in ss.
507215.44(3)(2) and 215.47(10), the moneys or assets of the System
508Trust Fund invested or deposited in any financial institution,
509as defined in s. 655.005, which, directly or through a
510subsidiary, on or after October 1, 1988, makes any loan, extends
511credit of any kind or character, or advances funds in any manner
512to Northern Ireland or national corporations of Northern Ireland
513or agencies or instrumentalities thereof shall reflect the
514extent to which such entities have endeavored to eliminate
515ethnic or religious discrimination as determined pursuant to
516paragraph (1)(b).
517     Section 8.  Subsection (15) of section 215.47, Florida
518Statutes, is amended to read:
519     215.47  Investments; authorized securities; loan of
520securities.-Subject to the limitations and conditions of the
521State Constitution or of the trust agreement relating to a trust
522fund, moneys available for investments under ss. 215.44-215.53
523may be invested as follows:
524     (15)  With no more, in the aggregate, than 10 percent of
525any fund in alternative investments, as defined in s.
526215.44(10)(8)(c)1.a., through participation in the vehicles
527defined in s. 215.44(10)(8)(c)1.b., or in securities or
528investments that are not publicly traded and are not otherwise
529authorized by this section.
530     Section 9.  This act shall take effect July 1, 2010.


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