EXPLANATION: CAPITALS INDICATE MAT TER ADDED TO EXISTIN G LAW. [Brackets] indicate matter deleted from existing law. *sb0727* SENATE BILL 727 P6 2lr2218 CF 2lr2222 By: Senator Rosapepe Introduced and read first time: February 7, 2022 Assigned to: Budget and Taxation A BILL ENTITLED AN ACT concerning 1 State Retirement and Pension System – Investment Management Fees 2 FOR the purpose of requiring the Board of Trustees for the State Retirement and Pension 3 System, on or before a certain date each year, to require each alternative investment 4 vehicle in which the system invests to disclose certain information regarding certain 5 fees and expenses for the preceding fiscal year; requiring the State Retirement 6 Agency to report certain information pertaining to the disclosures; and generally 7 relating to investment management fees of the State Retirement and Pension 8 System. 9 BY repealing and reenacting, without amendments, 10 Article – State Personnel and Pensions 11 Section 21–315(g) 12 Annotated Code of Maryland 13 (2015 Replacement Volume and 2021 Supplement) 14 BY adding to 15 Article – State Personnel and Pensions 16 Section 21–315(h) 17 Annotated Code of Maryland 18 (2015 Replacement Volume and 2021 Supplement) 19 SECTION 1. BE IT ENACTED BY THE GENERAL ASSEMBLY OF MARYLAND, 20 That the Laws of Maryland read as follows: 21 Article – State Personnel and Pensions 22 21–315. 23 2 SENATE BILL 727 (g) (1) (i) On or before December 31 of each year, the Board of Trustees 1 shall report to the General Assembly the actual amount spent for investment management 2 services during the preceding fiscal year. 3 (ii) The report required under subparagraph (i) of this paragraph 4 shall include the amount of carried interest on any assets of the system. 5 (2) On or before December 31 each year, the Board of Trustees shall report 6 to the General Assembly the actual amount spent for Investment Division operations 7 during the preceding fiscal year. 8 (H) (1) (I) IN THIS SUBSECTION TH E FOLLOWING WORDS HA VE THE 9 MEANINGS INDICATED . 10 (II) “ALTERNATIVE INVESTMEN T” MEANS AN INVESTMENT IN A 11 PRIVATE EQUITY FUND , A VENTURE FUND , A HEDGE FUND , OR AN ABSOLUTE 12 RETURN FUND . 13 (III) “ALTERNATIVE INVESTMEN T VEHICLE ” MEANS THE 14 LIMITED PARTNERSHIP , LIMITED LIABILITY CO MPANY, OR SIMILAR LEGAL 15 STRUCTURE THROUGH WHICH THE STATE RETIREMENT AND PENSION SYSTEM 16 INVESTS IN AN ALTERN ATIVE INVESTMENT . 17 (IV) “CARRIED INTEREST ” MEANS ANY SHARE OF P ROFITS FROM 18 AN ALTERNATIVE INVES TMENT VEHICLE THAT I S DISTRIBUTED TO A F UND 19 MANAGER, GENERAL PARTNER , OR RELATED PARTIES, INCLUDING ALLOCATION S OF 20 ALTERNATIVE INVESTME NT VEHICLE PROFITS R ECEIVED BY A FUND MA NAGER IN 21 CONSIDERATION OF HAV ING WAIVED FEES THAT IT MIGHT OTHERWISE H AVE BEEN 22 ENTITLED TO RECEIVE . 23 (V) “GROSS RATE OF RETURN ” MEANS THE INTERNAL R ATE OF 24 RETURN FOR THE ALTERNATI VE INVESTMENT VEHICL E PRIOR TO THE REDUC TION 25 OF FEES AND EXPENSE S. 26 (VI) “INVESTMENT MANAGER ” MEANS THE GENERAL PA RTNER, 27 MANAGING MANAGER , ADVISER, OR OTHER PERSON OR E NTITY WITH PRIMARY 28 INVESTMENT DECISION –MAKING AUTHORITY OVE R AN ALTERNATIVE INVESTMEN T 29 VEHICLE AND RELATED PARTIES OF THE FUND MANAGER. 30 (VII) “OPERATIONAL PERSON ” MEANS ANY OPERATIONA L 31 PARTNER, SENIOR ADVISOR , OR OTHER CONSULTANT OR EMPLOYEE WHOSE 32 PRIMARY ACTIVITY FOR A RELEVANT ENTITY IS TO PROVIDE OPERATION AL OR BACK 33 OFFICE SUPPORT TO AN Y PORTFOLIO COMPANY OF ANY ALTERNATIVE I NVESTMENT 34 VEHICLE, ACCOUNT, OR FUND MANAGED BY A RELATED PERSON . 35 SENATE BILL 727 3 (VIII) “PORTFOLIO COMPANIES ” MEANS INDIVIDUAL POR TFOLIO 1 INVESTMENTS MADE BY THE ALTERNATIVE INVE STMENT VEHICLE . 2 (IX) “RELATED PARTY ” MEANS ANY: 3 1. RELATED PERSON ; 4 2. OPERATIONAL PERSON ; 5 3. ENTITY WITH MORE THAN 10% OF THE OWNERSHIP 6 HELD DIRECTLY OR IND IRECTLY, WHETHER THROUGH OTHE R ENTITIES OR TRUSTS , 7 BY A RELATED PERSON OR OPERATIONAL PERSO N, REGARDLESS OF WHETHER THE 8 RELATED PERSON OR OP ERATIONAL PERSON PAR TICIPATES IN THE CAR RIED 9 INTEREST RECEIVED BY THE GENERAL PARTNER OR THE SPECIAL LIMIT ED 10 PARTNER; OR 11 4. CONSULTANT, LEGAL SERVICES PROVIDER , OR 12 OTHER SERVICE PROVID ER THAT: 13 A. IS REGULARLY ENGA GED BY PORTFOLIO COM PANIES 14 OF AN ALTERNATIVE IN VESTMENT VEHICLE , ACCOUNT, OR FUND MANAGED BY A 15 RELATED PERSON ; AND 16 B. ALSO PROVIDES ADVICE OR SERVICES TO ANY 17 RELATED PERSON OR RE LEVANT ENTITY . 18 (X) “RELATED PERSON ” MEANS ANY CURRENT OR FORMER 19 EMPLOYEE, MANAGER, OR PARTNER OF ANY RE LATED ENTITY THAT IS INVOLVED IN 20 THE INVESTMENT ACTIV ITIES OR ACCOUNTING AND VALUATION FUNCTI ONS OF THE 21 RELEVANT ENTITY OR A NY OF THEIR RESPECTI VE FAMILY MEMBERS . 22 (XI) “RELEVANT ENTITY ” MEANS THE GENERAL PA RTNER, ANY 23 SEPARATE CARRY VEHIC LE, THE INVESTOR ADVISOR , ANY OF THE INVESTMEN T 24 ADVISOR’S PARENT OR SUBSIDIA RY ENTITIES, OR ANY SIMILAR ENTIT Y RELATED TO 25 ANY OTHER ALTERNATIV E INVESTMENT VEHICLE , ACCOUNT, OR FUND ADVISED OR 26 MANAGED BY ANY CURRE NT OR FORMER RELATED PERSON. 27 (2) (I) THIS SECTION APPL IES TO: 28 1. ALL NEW CONTRACTS TH E BOARD OF TRUSTEES 29 ENTERS INTO ON OR AF TER JANUARY 1, 2023; AND 30 4 SENATE BILL 727 2. ALL EXISTING CONTRAC TS UNDER WHICH THE 1 SYSTEM MAKES A NEW CAPITAL COMMITMENT ON OR AFT ER JANUARY 1, 2023. 2 (II) WITH RESPECT TO EXIST ING CONTRACTS NOT CO VERED 3 UNDER SUBPARAGRAPH (I) OF THIS PARAGRAPH , THE BOARD OF TRUSTEES SHALL 4 UNDERTAKE REASONABLE EFFORTS TO OBTAIN TH E INFORMATION DESCRI BED IN 5 PARAGRAPH (3) OF THIS SUBSECTION AND COMPLY WITH THE REPORTING 6 REQUIREMENTS WITH RE SPECT TO ANY INFORMA TION OBTAINED ON OR AFTER 7 JANUARY 1, 2023. 8 (3) (I) ON OR BEFORE DECEMBER 31 EACH YEAR, THE BOARD OF 9 TRUSTEES SHALL REQUIR E EACH ALTERNATIVE I NVESTMENT VEHICLE IN WHICH IT 10 INVESTS TO DISCLOSE AT LEAST ANNUALLY FO R THE PRECEDING FISC AL YEAR: 11 1. THE FEES AND EXPENSE S THAT THE STATE 12 RETIREMENT AGENCY PAYS DIRECTLY TO THE ALTERNATIVE I NVESTMENT 13 VEHICLE, THE INVESTMENT MANAG ER, OR RELATED PARTIES ; 14 2. THE SYSTEM’S PRO RATA SHARE OF FEES AND 15 EXPENSES NOT INCLUDE D IN ITEM 1 OF THIS SUBPARAGRAPH THAT ARE PAID FROM 16 THE ALTERNATIVE INVE STMENT VEHICLE TO TH E INVESTMENT MANAGER OR 17 RELATED PARTIES ; 18 3. THE SYSTEM’S PRO RATA SHARE OF CARRIED 19 INTEREST DISTRIBUTED TO THE INVESTMENT MA NAGER OR RELATED PARTIES ; AND 20 4. THE SYSTEM’S PRO RATA SHARE OF AGGREGATE FEES 21 AND EXPENSES PAID BY ALL OF THE PORTFOLIO COMPANIES HELD WITHI N THE 22 ALTERNATIVE INVESTME NT VEHICLE TO THE IN VESTMENT MANAGER OR RELATED 23 PARTIES. 24 (II) 1. THE STATE RETIREMENT AGENCY SHALL DISCLOSE 25 THE INFORMATION PROV IDED IN ACCORDANCE WITH SUBPARAGRAPH (I) OF THIS 26 PARAGRAPH AT LEAST ONCE ANNUAL LY IN A REPORT PRESE NTED TO THE GENERAL 27 ASSEMBLY, IN ACCORDANCE WITH § 2–1257 OF THE STATE GOVERNMENT ARTICLE. 28 2. THE REPORT REQUIRED UNDER SUBSUBPARAGRAP H 29 1 OF THIS SUBPARAGRAPH SHALL ALSO INCLUDE T HE GROSS AND NET RAT E OF 30 RETURN OF EACH ALTER NATIVE INVESTMENT VE HICLE, SINCE INCEPTION , IN 31 WHICH THE SYSTEM PARTICIPATES. 32 3. THE STATE RETIREMENT AGENCY MAY REPORT THE 33 GROSS AND NET RATE O F RETURN AND INFORMA TION REQUIRED BY 34 SENATE BILL 727 5 SUBPARAGRAPH (I) OF THIS PARAGRAPH BASED ON ITS OWN CAL CULATIONS OR 1 BASED ON CALCULATION S PROVIDED BY THE AL TERNATIVE INVESTMENT VEHICLE. 2 4. A. THE STATE RETIREMENT AGENCY MAY 3 INDEPENDENTLY CALCULAT E THE INFORMATION RE QUIRED UNDER THIS 4 SUBPARAGRAPH BASED ON INFORMATION CONTRACTUALLY REQUIR ED TO BE 5 PROVIDED BY THE ALTE RNATIVE INVESTMENT V EHICLE TO THE BOARD OF 6 TRUSTEES. 7 B. IF THE STATE RETIREMENT AGENCY 8 INDEPENDENTLY CALCUL ATES THE INFORMATION REQUIRED UNDER THIS 9 SUBPARAGRAPH , THEN THE ALTERNATIVE INVESTMENT VEHICLE MAY NOT BE 10 REQUIRED TO PROVIDE THE INFORMATION IDEN TIFIED IN THIS PARAG RAPH. 11 SECTION 2. AND BE IT FURTHER ENACTED, That this Act shall take effect 12 October 1, 2022. 13