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Placement Agents and the California Political Reform Act

A Placement Agent is required to register as a lobbyist with the California Secretary of State’s office

By Chris Micheli, January 14, 2022 2:20 am

The California Political Reform Act was amended to regulate “placement agents.” Under Government Code Section 82047.3(a), a “placement agent” is defined to mean an individual directly or indirectly hired, engaged, or retained by, or serving for the benefit of or on behalf of, an external manager or an investment fund managed by an external manager, and who acts or has acted for compensation as a finder, solicitor, marketer, consultant, broker, or other intermediary in connection with the offer or sale to a state public retirement system in California or an investment vehicle either of the following:

  • In the case of an external manager, the investment management services of the external manager.
  • In the case of an external manager, an ownership interest in an investment fund managed by the external manager.

Under Section 82047.3(b), an individual who is an employee, officer, director, equity holder, partner, member, or trustee of an external manager and who spends one-third or more of the individual’s time, during a calendar year, managing the securities or assets owned, controlled, invested, or held by the external manager is not a placement agent.

In addition, under Section 82047.3(c), an employee, officer, or director of an external manager, or of an affiliate of an external manager, is not a placement agent with respect to an offer or sale of investment management services if all of the following apply:

  • The external manager is registered as an investment adviser or a broker-dealer with the Securities and Exchange Commission or, if exempt from or not subject to registration with the Securities and Exchange Commission, any appropriate state securities regulator.
  • The external manager is participating in a competitive bidding process, such as a request for proposals, or has been selected through that process, and is providing services pursuant to a contract executed as a result of that competitive bidding process.
  • The external manager, if selected through a competitive bidding process, has agreed to a fiduciary standard of care, as defined by the standards of conduct applicable to the retirement board of a public pension or retirement system when managing a portfolio of assets of a state public retirement system in California.

Finally, Section 82047.3(e) defines “investment vehicle” to mean “a corporation, partnership, limited partnership, limited liability company, association, or other entity, either domestic or foreign, managed by an external manager in which a state public retirement system in California is the majority investor and that is organized in order to invest with, or retain the investment management services of, other external managers.

Anyone who is a placement agent as defined in the California Government Code (section 7513.8(d)) is required to register as a lobbyist with the California Secretary of State’s office. These laws were enacted by AB 1743 (Hernandez) as Chapter 668 in 2010. The bill amended Sections 7513.8, 82002, and 82039, and added Sections 7513.86, 7513.87, 82025.3, 82047.3, and 86206 to, the Government Code.

The Secretary of State’s Office provides a “Frequently Asked Questions” document for assist placement agents in their filings, and the Secretary of State has all of the forms available needed to comply with the law, including free, online filing forms and instructions.

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