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Gov. Schwarzenegger Signs New “Pay-to-Play” Law


On September 30, 2010, California Governor Arnold Schwarzenegger signed into law AB 1743, which regulates the activities of placement agents who solicit investments from public pensions on behalf of investment managers. The new law:

  • prohibits a person from acting as a placement agent in connection with any potential investment by a state public retirement system unless that person is registered as a lobbyist; and
  • requires placement agents acting in connection with any potential investment by a local public retirement system to file reports with a local government agency and comply with any applicable requirements imposed by such local government agency.

AB 1743 defines a “placement agent” as any person or entity hired, engaged, or retained by an external manager who acts or has acted for compensation as a finder, solicitor, marketer, consultant, broker, or other intermediary in connection with the offer or sale of the securities, assets, or services of an external manager to a California public pension. The definition excludes:

  • employees, officers, directors and equityholders of external managers who spend one-third or more of their time managing the securities or assets of the external manager; and
  • affiliates who manage assets of a California public retirement system if the external manager (i) is registered with the SEC or an appropriate state securities regulator, (ii) is selected by a competitive bidding process and (iii) agrees to a fiduciary standard of care.

AB 1743 is effective as of January 1, 2011.

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