California Governor Jerry Brown has signed senate bill 398 into law. The bill alters definitions and reporting requirements for those who do business with the board of a public pension or retirement system to manage securities or other assets and went into effect upon signature.

Specifically, the new law modifies the definition of external managers to mean a person who is seeking to be, or is, retained by a board or an investment vehicle to manage a portfolio of securities or other assets for compensation, or a person who manages an investment fund, and who offers or sells, or has offered or sold an ownership interest in the investment fund to a board or investment vehicle. The law also alters the definition of a placement agent to a person directly or indirectly hired, engaged, or retained by, or serving for the benefit of or on behalf of, an external manger and who acts or has acted for compensation as a finder, solicitor, marketer, consultant, broker, or other intermediary in connection with the offer or sale to a board or investment vehicle either the investment management services of the external manager or an ownership interest in an investment fund managed by the external manager.

Additional changes made as the result of the new law include the exemption of placement agents from any requirements imposed by a local government agency, including lobbyist registration and reporting, if the placement agent is an employee, officer, or director of an external manager, or of an affiliate of an external manager, and the external manager is registered as an investment adviser or a broker-dealer with the Securities and Exchange Commission or any state securities regulator. Further, placement agents are exempt from local requirements if the external manager is participating in a competitive bidding process, such as a request for proposal, or has been selected through a competitive bidding process and is providing services pursuant to a contract executed as a result of that bidding process, or when the external manager, if selected through competitive bidding, has agreed to a fiduciary standard of care for the contract.