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CalPERS Proposes Conflict Of Interest Disclosure Regulation

CalPERS recently gave notice that it is proposing to adopt a new rule requiring disclosure of conflicts of interests by consultants and external managers.  Under the California Administrative Procedure Act, Cal. Gov't Code § 11340 et seq., an agency must include in its initial statement of reasons "the problem the agency intends to address".  Cal. Gov't Code § 11346.2(b)(1).   Here's CalPERS' statement of the problem:

Many investor protections currently exist at the Federal and State level requiring disclosure of Conflicts of Interest by investment advisers to their clients and prospective clients. Congress has passed multiple pieces of landmark legislation regulating the securities industry and those who work in it.  The California Public Employees’ Retirement System (CalPERS) seeks to adopt the proposed regulation to keep with the intent of the securities laws and regulations and to conform to industry best practices.

That's the entire statement.  I would summarize it as follows - CalPERS wants to keep up with the regulatory Joneses.  CalPERS doesn't point to a lacuna in existing regulations or argue that they are ineffective, it merely asserts a desire to "keep with the intent" and "conform".

The lack of any identified problem is further underscored by CalPERS' description of the technical, theoretical, and/or empirical study, reports, or documents relied upon by the agency:

Under federal law, an investment adviser is a fiduciary and must seek to avoid conflicts of interest with their clients.  At a minimum, an investment adviser must make full disclosure of all material conflicts of interest between themselves and a client that could affect the advisory relationship.  This requires that the investment adviser provide the client with sufficiently specific facts so that the client is able to understand the conflicts of interest and can give informed consent to such conflicts or reject them.

Leaving aside that CalPERS doesn't actually identify any study, report or document in the foregoing statement, it sounds as if there is already regulation in place.

Those interested in commenting on the proposal have until 5:oo p.m. on May 19, 2014.  In addition to mail, comments may be submitted by facsimile at (916) 795-4607 or by email to

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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
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