Fundraising best practices

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Professional best practices for fund raising

California legislation equates fundraising to political lobbying

Effective as of 1 January 2011, California Assembly Bill No. 1743 (“AB 1743”) imposes additional administrative best practice requirements on placement agents used to solicit investments from three of the US’s largest public pension plans. AB 1743 requires placement agents who solicit investments from California state public retirement systems (California Public Employees’ Retirement System (CalPERS), California State Teachers Retirement System (CalSTRS) and University of California) to register as lobbyists with the state under the California Political Reform Act of 1974 (the “PRA”).

AB 1743 defines “placement agent” broadly, and may include employees of investment managers who solicit California public retirement systems for compensation, unless they fall under one of two exceptions:

1.     the employee spends one-third or more of his time during the calendar year managing securities or assets of the manager (the “One-Third Test”), or

2.     (for CalPERS and CalSTRS only) the manager is registered with the Securities and Exchange Commission, is selected through a competitive bidding process, and agrees to act as a fiduciary with respect to CalPERS’ and CalSTRS’ investments.

How the One-Third Test will function in best practice remains unclear, but those employees with limited roles in the fundraising process likely would not be considered placement agents.

Placement agents who are required to register as lobbyists under the PRA are subject to best practices in reporting and ethical rules. In addition, the PRA effectively prohibits placement agents from receiving compensation contingent on a CalPERS’ or CalSTRS’ investment, thereby eliminating the traditional means of compensating a placement agent.

The Third Party Marketers Association reports that many of their members are now adapting their charges to hourly rate advisory scales for California state entities so as to comply with  fundraising regulation and best practices.

Placement agents seeking to solicit local public pension or retirement systems in California must also register under the PRA as required by local government agencies.

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