EXPLANATION: CAPITALS INDICATE MAT TER ADDED TO EXISTIN G LAW.
[Brackets] indicate matter deleted from existing law.
*sb0727*
SENATE BILL 727
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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