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       Florida Senate - 2010                                    SB 1530
       By Senator Deutch
       30-00451-10                                           20101530__
    1                        A bill to be entitled                      
    2         An act relating to the State Board of Administration;
    3         amending s. 215.44, F.S.; requiring that the board
    4         create an audit committee for specified purposes;
    5         providing for membership of the committee; providing
    6         requirements for members of the committee; prescribing
    7         terms for members; providing that members are state
    8         officers as defined by state law; providing duties and
    9         powers of the committee; requiring that the executive
   10         director of the board respond in writing and indicate
   11         whether action will be taken within a specified period
   12         after receipt of a recommendation from the committee;
   13         requiring that a copy of the executive director’s
   14         response be provided to the board and the committee;
   15         requiring that the committee appoint a Chief of
   16         Internal Audit; providing powers and obligations of
   17         the chief; authorizing the board to prescribe
   18         additional powers and duties to the committee;
   19         amending s. 215.441, F.S.; requiring that the board
   20         appoint an executive director; providing requirements
   21         for appointment as executive director; providing
   22         duties of the executive director; authorizing the
   23         board to set additional requirements for appointment;
   24         providing that the executive director is a state
   25         officer for purposes of certain provisions of state
   26         law; amending s. 215.442, F.S.; requiring that the
   27         executive director’s quarterly report to the board of
   28         trustees of the State Board of Administration and
   29         Investment Advisory Council contain certain
   30         information; amending s. 215.444, F.S.; increasing the
   31         number of members of the Investment Advisory Council;
   32         requiring that the council annually make certain
   33         recommendations; requiring that the council approve
   34         all new products considered for investment by the
   35         board; requiring that a specified number of members of
   36         the council represent specified interests; providing
   37         that members are state officers for purposes of
   38         certain provisions of state law; amending s. 215.47,
   39         F.S.; conforming cross-references; amending s.
   40         215.475, F.S.; requiring that the Investment Advisory
   41         Council assist in the development of the Florida
   42         Retirement System Defined Benefit Plan Investment
   43         Policy Statement; deleting provisions requiring the
   44         review of recommended changes to the statement by the
   45         council; creating s. 215.4754, F.S.; requiring that
   46         the board adopt by rule standards of conduct for
   47         investment advisers and managers; providing
   48         circumstances under which a contract with an
   49         investment adviser or manager is voidable; prohibiting
   50         an Investment Advisory Council member or such member’s
   51         business organization or affiliate from performing
   52         certain actions during the member’s service on the
   53         council and for a specified period thereafter;
   54         creating s. 215.4755, F.S.; requiring that an
   55         investment adviser or manager disclose certain
   56         information to the board; requiring that an investment
   57         adviser or manager annually file a statement with the
   58         board; requiring that the statement contain certain
   59         information and be filed on or before a specified
   60         deadline on a form prescribed by the board; requiring
   61         that the statement cover the preceding calendar year;
   62         requiring that an investment adviser or manager file a
   63         new or amended statement under certain circumstances;
   64         amending s. 218.409, F.S.; requiring that the board
   65         create a participating investor council; providing
   66         purposes of the council; providing an effective date.
   68  Be It Enacted by the Legislature of the State of Florida:
   70         Section 1. Present subsections (3) through (9) of section
   71  215.44, Florida Statutes, are renumbered as subsections (4)
   72  through (10), respectively, and a new subsection (3) is added to
   73  that section, to read:
   74         215.44 Board of Administration; powers and duties in
   75  relation to investment of trust funds.—
   76         (3)(a)The board shall create an audit committee to assist
   77  the board in fulfilling its oversight responsibilities in the
   78  areas of financial reporting, internal controls and risk
   79  assessment, audit processes, and compliance with laws and rules.
   80  The audit committee shall be chaired by the Chief Financial
   81  Officer and shall consist of six members. The Governor and the
   82  Attorney General shall each appoint two members to the audit
   83  committee, and the Chief Financial Officer shall appoint one
   84  member. Each member must be independent and free from any
   85  relationship that would interfere with the exercise of his or
   86  her independent judgment as a member of the committee. Each
   87  member shall be appointed to a term of 4 years and shall serve
   88  at the pleasure of his or her appointing authority. Persons
   89  appointed to the audit committee must have relevant knowledge
   90  and expertise as determined by the board. Members of the
   91  committee are state officers for purposes of s. 112.3145.
   92         (b)The audit committee shall independently and objectively
   93  monitor on an ongoing basis the board’s processes for financial
   94  reporting, internal controls and risk assessment, and compliance
   95  with laws and rules. The audit committee shall direct the
   96  efforts of the board’s independent external auditors and the
   97  board’s internal audit staff. The committee shall report, at
   98  least quarterly, all findings and recommendations to the
   99  executive director and the board.
  100         (c)The audit committee may:
  101         1.Seek any information it requires from employees of the
  102  board, who shall provide such information upon request, and from
  103  third parties;
  104         2.Meet, as necessary, with the investment advisory
  105  council, the investor council, board employees, or external
  106  auditors;
  107         3.Review the budget for the Office of Internal Audit; and
  108         4.Retain outside accountants, consultants, attorneys, or
  109  others approved by the board to assist in conducting an audit,
  110  review, or special investigation as directed by the board.
  111         (d)Upon receipt of any recommendation from the committee,
  112  the executive director shall, within 30 days after receipt,
  113  respond in writing and indicate whether action will be taken.
  114  The executive director shall specify the action that will be
  115  taken or the reasons for not taking action. A copy of the
  116  executive director’s written response shall be provided to the
  117  committee and the board.
  118         (e)The committee shall appoint a Chief of Internal Audit,
  119  who shall have those powers and duties set by the committee and
  120  report to the committee.
  121         (f)The committee shall have additional powers and duties
  122  as set by the board.
  123         Section 2. Section 215.441, Florida Statutes, is amended to
  124  read:
  125         215.441 Board of Administration; appointment of executive
  126  director.—
  127         (1)The State Board of Administration shall appoint an
  128  executive director to manage and invest funds as directed by the
  129  board. The executive director must have proven knowledge and
  130  expertise in overseeing institutional investment portfolios, and
  131  must have extensive experience in any two or more of the
  132  following areas: domestic equity or fixed-income securities,
  133  international equity or fixed-income securities, cash
  134  management, alternative investments, managed futures, or real
  135  estate investment trusts. The board may set additional
  136  requirements for appointment.
  137         (2) The appointment of the executive director of the State
  138  Board of Administration shall be subject to the approval by a
  139  majority vote of the Board of Trustees of the State Board of
  140  Administration, and the Governor must vote on the prevailing
  141  side. Such appointment must be affirmed by the Investment
  142  Advisory Council and reaffirmed in the same manner by the board
  143  of trustees on an annual basis.
  144         (3)The executive director is a state officer for purposes
  145  of s. 112.3145.
  146         Section 3. Subsection (1) of section 215.442, Florida
  147  Statutes, is amended to read:
  148         215.442 Executive director; reporting requirements; public
  149  meeting.—
  150         (1) Beginning October 2007 and quarterly thereafter, The
  151  executive director shall present to the Board of Trustees of the
  152  State Board of Administration and the Investment Advisory
  153  Council a quarterly report to include the following:
  154         (a) The name of each equity and alternative investment in
  155  which the State Board of Administration has invested for the
  156  quarter.
  157         (b) The industry category of each equity.
  158         (c)The type and value of assets that have been downgraded
  159  during the preceding quarter.
  160         Section 4. Section 215.444, Florida Statutes, is amended to
  161  read:
  162         215.444 Investment Advisory Council.—
  163         (1) There is created a nine-member six-member Investment
  164  Advisory Council to review the investments made by the staff of
  165  the Board of Administration and to make recommendations to the
  166  board regarding investment policy, strategy, and procedures. The
  167  council shall recommend asset allocations for funds held by the
  168  board and shall approve all new product types considered for
  169  investment by the board.
  170         (2) The members of the council shall be appointed by the
  171  board and shall be subject to confirmation by the Senate. The
  172  members must include one member representing local governments,
  173  one representative of a state employees’ union in the Regular
  174  Class, one representative of a teachers’ union, one
  175  representative of a police union, one representative of a
  176  firefighters’ union, and one beneficiary of the Florida
  177  Retirement System. These individuals shall possess special
  178  knowledge, experience, and familiarity with financial
  179  investments and portfolio management. Members shall be appointed
  180  for 4-year terms. A vacancy shall be filled for the remainder of
  181  the unexpired term. The council shall annually elect a chair and
  182  a vice chair from its membership. A member may not be elected to
  183  consecutive terms as chair or vice chair. Members of the council
  184  are state officers for purposes of s. 112.3145.
  185         Section 5. Subsection (15) of section 215.47, Florida
  186  Statutes, is amended to read:
  187         215.47 Investments; authorized securities; loan of
  188  securities.—Subject to the limitations and conditions of the
  189  State Constitution or of the trust agreement relating to a trust
  190  fund, moneys available for investments under ss. 215.44-215.53
  191  may be invested as follows:
  192         (15) With no more, in the aggregate, than 10 percent of any
  193  fund in alternative investments, as defined in s.
  194  215.44(9)(c)1.a. s. 215.44(8)(c)1.a., through participation in
  195  the vehicles defined in s. 215.44(9)(c)1.b. s. 215.44(8)(c)1.b.,
  196  or in securities or investments that are not publicly traded and
  197  are not otherwise authorized by this section.
  198         Section 6. Section 215.475, Florida Statutes, is amended to
  199  read:
  200         215.475 Investment policy statement.—
  201         (1) In making investments for the System Trust Fund
  202  pursuant to ss. 215.44-215.53, the board shall make no
  203  investment which is not in conformance with the Florida
  204  Retirement System Defined Benefit Plan Investment Policy
  205  Statement, hereinafter referred to as “the IPS,” as developed by
  206  the executive director and the Investment Advisory Council and
  207  approved by the board. The IPS must include, among other items,
  208  the investment objectives of the System Trust Fund; permitted
  209  types of securities in which the board may invest; and
  210  evaluation criteria necessary to measure the investment
  211  performance of the fund. As required from time to time, the
  212  executive director of the board may present recommended changes
  213  in the IPS to the board and Investment Advisory Council for
  214  approval.
  215         (2) Prior to any recommended changes in the IPS being
  216  presented to the board, the executive director of the board
  217  shall present such changes to the Investment Advisory Council
  218  for review. The council shall present the results of its review
  219  to the board prior to the board’s final approval of the IPS or
  220  changes in the IPS.
  221         Section 7. Section 215.4754, Florida Statutes, is created
  222  to read:
  223         215.4754Ethics requirements for investment advisers and
  224  managers.—
  225         (1)The board shall adopt by rule standards of conduct
  226  applicable to investment advisers and managers retained pursuant
  227  to s. 215.44(2)(b).
  228         (2)A contract under which an investment adviser or manager
  229  renders financial services or advice to the board is voidable by
  230  the board if the investment adviser or manager violates a
  231  standard of conduct adopted under this section.
  232         (3)An Investment Advisory Council member or such member’s
  233  business organization or affiliate may not directly or
  234  indirectly contract with or provide any services for the
  235  investment of trust funds of the state during the time of such
  236  member’s service on the council or for 1 year thereafter.
  237         Section 8. Section 215.4755, Florida Statutes, is created
  238  to read:
  239         215.4755Disclosure requirements for investment advisers
  240  and managers.—
  241         (1)An investment adviser or manager retained pursuant to
  242  s. 215.44(2)(b) shall disclose in writing to the board:
  243         (a)Any relationship the investment adviser or manager has
  244  with any party to a transaction with the board, other than a
  245  relationship necessary to the investment or funds-management
  246  services that the investment adviser or manager performs for the
  247  board, if a prudent person could expect the relationship to
  248  diminish the investment adviser’s or manager’s independence of
  249  judgment in the performance of his or her responsibilities to
  250  the board; and
  251         (b)All direct or indirect pecuniary interests the
  252  investment adviser or manager has in any party to a transaction
  253  with the board, if the transaction is connected with any
  254  financial advice or service the investment adviser or manager
  255  provides to the board in connection with the management or
  256  investment of funds pursuant to s. 215.44(1).
  257         (2)The investment adviser or manager shall disclose a
  258  relationship described in paragraph (1)(a) without regard to
  259  whether the relationship is a direct, indirect, personal,
  260  private, commercial, or business relationship.
  261         (a)An investment adviser or manager retained pursuant to
  262  s. 215.44(2)(b) shall annually file a statement with the board
  263  disclosing each relationship or pecuniary interest described by
  264  this section. If no such relationship or pecuniary interest
  265  existed during the disclosure period, the statement must
  266  affirmatively state that fact.
  267         (b)The annual statement shall be filed no later than
  268  January 1 on a form prescribed by the board. The statement shall
  269  cover the reporting period of the previous calendar year.
  270         (c)The investment adviser or manager shall promptly file a
  271  new or amended statement with the board whenever there is new
  272  information to report under this section.
  273         Section 9. Present subsections (9) and (10) of section
  274  218.409, Florida Statutes, are renumbered as subsections (10)
  275  and (11), respectively, and a new subsection (9) is added to
  276  that section, to read:
  277         218.409 Administration of the trust fund; creation of
  278  advisory council.—
  279         (9)The board shall create a participating investor council
  280  to advise the board regarding the investment practices, internal
  281  controls and risk assessment, and audit processes for funds
  282  invested by the board pursuant to this part.
  283         Section 10. This act shall take effect July 1, 2010.

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