| 1 | A bill to be entitled |
| 2 | An act relating to the State Board of Administration; |
| 3 | amending s. 215.44, F.S.; requiring that the board create |
| 4 | an audit committee for specified purposes; providing for |
| 5 | membership of the committee; providing requirements for |
| 6 | members of the committee; prescribing terms for members; |
| 7 | providing that members are state officers as defined by |
| 8 | state law; providing duties and powers of the committee; |
| 9 | requiring that the executive director of the board respond |
| 10 | in writing and indicate whether action will be taken |
| 11 | within a specified period after receipt of a |
| 12 | recommendation from the committee; requiring that a copy |
| 13 | of the executive director's response be provided to the |
| 14 | board and the committee; requiring that the committee |
| 15 | appoint a Chief of Internal Audit; providing powers and |
| 16 | obligations of the chief; authorizing the board to |
| 17 | prescribe additional powers and duties to the committee; |
| 18 | amending s. 215.441, F.S.; requiring that the board |
| 19 | appoint an executive director; providing requirements for |
| 20 | appointment as executive director; providing duties of the |
| 21 | executive director; authorizing the board to set |
| 22 | additional requirements for appointment; requiring |
| 23 | affirmation of such appointment by the Investment Advisory |
| 24 | Council; providing that the executive director is a state |
| 25 | officer for purposes of certain provisions of state law; |
| 26 | amending s. 215.442, F.S.; requiring that the executive |
| 27 | director's quarterly report to the board of trustees of |
| 28 | the State Board of Administration and the Investment |
| 29 | Advisory Council contain certain information; amending s. |
| 30 | 215.444, F.S.; increasing the number of members of the |
| 31 | Investment Advisory Council; requiring that the council |
| 32 | make certain recommendations; requiring that the council |
| 33 | approve all new products considered for investment by the |
| 34 | board; requiring that a specified number of members of the |
| 35 | council represent specified interests; providing that |
| 36 | members are state officers for purposes of certain |
| 37 | provisions of state law; amending s. 215.47, F.S.; |
| 38 | conforming cross-references; amending s. 215.475, F.S.; |
| 39 | requiring that the Investment Advisory Council assist in |
| 40 | the development of the Florida Retirement System Defined |
| 41 | Benefit Plan Investment Policy Statement; authorizing the |
| 42 | board's executive director to present recommended IPS |
| 43 | changes to the Investment Advisory Council for approval; |
| 44 | deleting provisions requiring the review of recommended |
| 45 | changes to the statement by the council; creating s. |
| 46 | 215.4754, F.S.; requiring that the board adopt by rule |
| 47 | standards of conduct for investment advisers and managers; |
| 48 | providing circumstances under which a contract with an |
| 49 | investment adviser or manager is voidable; prohibiting an |
| 50 | Investment Advisory Council member or certain |
| 51 | organizations or affiliates from contracting with or |
| 52 | providing services for certain investments for a specified |
| 53 | period; creating s. 215.4755, F.S.; requiring that an |
| 54 | investment adviser or manager disclose certain information |
| 55 | to the board; requiring that an investment adviser or |
| 56 | manager annually file a statement with the board; |
| 57 | requiring that the statement contain certain information |
| 58 | and be filed on or before a specified deadline on a form |
| 59 | prescribed by the board; requiring that the statement |
| 60 | cover the preceding calendar year; requiring that an |
| 61 | investment adviser or manager file a new or amended |
| 62 | statement under certain circumstances; amending s. |
| 63 | 218.409, F.S.; requiring that the board create a |
| 64 | participating investor council; providing purposes of the |
| 65 | council; providing an effective date. |
| 66 |
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| 67 | Be It Enacted by the Legislature of the State of Florida: |
| 68 |
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| 69 | Section 1. Present subsections (3) through (9) of section |
| 70 | 215.44, Florida Statutes, are renumbered as subsections (4) |
| 71 | through (10), respectively, and a new subsection (3) is added to |
| 72 | that section to read: |
| 73 | 215.44 Board of Administration; powers and duties in |
| 74 | relation to investment of trust funds.-- |
| 75 | (3)(a) The board shall create an audit committee to assist |
| 76 | the board in fulfilling its oversight responsibilities in the |
| 77 | areas of financial reporting, internal controls and risk |
| 78 | assessment, audit processes, and compliance with laws and rules. |
| 79 | The audit committee shall be chaired by the Chief Financial |
| 80 | Officer and shall consist of six members. The Governor and the |
| 81 | Attorney General shall each appoint two members to the audit |
| 82 | committee, and the Chief Financial Officer shall appoint one |
| 83 | member. Each member must be independent and free from any |
| 84 | relationship that would interfere with the exercise of his or |
| 85 | her independent judgment as a member of the committee. Each |
| 86 | member shall be appointed to a term of 4 years and shall serve |
| 87 | at the pleasure of his or her appointing authority. Persons |
| 88 | appointed to the audit committee must have relevant knowledge |
| 89 | and expertise as determined by the board. Members of the |
| 90 | committee are state officers for purposes of s. 112.3145. |
| 91 | (b) The audit committee shall independently and |
| 92 | objectively monitor on an ongoing basis the board's processes |
| 93 | for financial reporting, internal controls and risk assessment, |
| 94 | and compliance with laws, rules, and regulations. The audit |
| 95 | committee shall direct the efforts of the board's independent |
| 96 | external auditors and the board's internal audit staff. The |
| 97 | committee shall report, at least quarterly, all findings and |
| 98 | recommendations to the executive director and the board. |
| 99 | (c) The audit committee may: |
| 100 | 1. Seek any information it requires from employees of the |
| 101 | board, who shall provide such information upon request, and from |
| 102 | third parties; |
| 103 | 2. Meet, as necessary, with the Investment Advisory |
| 104 | Council, the investor council, board employees, or external |
| 105 | auditors; |
| 106 | 3. Review the budget for the Office of Internal Audit; and |
| 107 | 4. Retain outside accountants, consultants, attorneys, or |
| 108 | others approved by the board to assist in conducting an audit, |
| 109 | review, or special investigation as directed by the board. |
| 110 | (d) Upon receipt of any recommendation from the committee, |
| 111 | the executive director shall, within 30 days after receipt, |
| 112 | respond in writing and indicate whether action will be taken. |
| 113 | The executive director shall specify the action that will be |
| 114 | taken or the reasons for not taking action. A copy of the |
| 115 | executive director's written response shall be provided to the |
| 116 | committee and the board. |
| 117 | (e) The committee shall appoint a Chief of Internal Audit, |
| 118 | who shall have those powers and duties set by the committee and |
| 119 | report to the committee. |
| 120 | (f) The committee shall have additional powers and duties |
| 121 | as set by the board. |
| 122 | Section 2. Section 215.441, Florida Statutes, is amended |
| 123 | to read: |
| 124 | 215.441 Board of Administration; appointment of executive |
| 125 | director.-- |
| 126 | (1) The State Board of Administration shall appoint an |
| 127 | executive director to manage and invest funds as directed by the |
| 128 | board. The executive director must have proven knowledge and |
| 129 | expertise in overseeing institutional investment portfolios and |
| 130 | must have extensive experience in any two or more of the |
| 131 | following areas: domestic equity or fixed-income securities, |
| 132 | international equity or fixed-income securities, cash |
| 133 | management, alternative investments, managed futures, or real |
| 134 | estate investment trusts. The board may set additional |
| 135 | requirements for appointment. |
| 136 | (2) The appointment of the executive director of the State |
| 137 | Board of Administration shall be subject to the approval by a |
| 138 | majority vote of the Board of Trustees of the State Board of |
| 139 | Administration, and the Governor must vote on the prevailing |
| 140 | side. Such appointment must be affirmed by the Investment |
| 141 | Advisory Council and reaffirmed in the same manner by the board |
| 142 | of trustees on an annual basis. |
| 143 | (3) The executive director is a state officer for purposes |
| 144 | of s. 112.3145. |
| 145 | Section 3. Subsection (1) of section 215.442, Florida |
| 146 | Statutes, is amended to read: |
| 147 | 215.442 Executive director; reporting requirements; public |
| 148 | meeting.-- |
| 149 | (1) Beginning October 2007 and quarterly thereafter, The |
| 150 | executive director shall present to the Board of Trustees of the |
| 151 | State Board of Administration and the Investment Advisory |
| 152 | Council a quarterly report to include the following: |
| 153 | (a) The name of each equity and alternative investment in |
| 154 | which the State Board of Administration has invested for the |
| 155 | quarter. |
| 156 | (b) The industry category of each equity. |
| 157 | (c) The type and value of assets that have been downgraded |
| 158 | during the preceding quarter. |
| 159 | Section 4. Section 215.444, Florida Statutes, is amended |
| 160 | to read: |
| 161 | 215.444 Investment Advisory Council.-- |
| 162 | (1) There is created a nine-member six-member Investment |
| 163 | Advisory Council to review the investments made by the staff of |
| 164 | the Board of Administration and to make recommendations to the |
| 165 | board regarding investment policy, strategy, and procedures. The |
| 166 | council shall recommend asset allocations for funds held by the |
| 167 | board and shall approve all new product types considered for |
| 168 | investment by the board. |
| 169 | (2) The members of the council shall be appointed by the |
| 170 | board and shall be subject to confirmation by the Senate. The |
| 171 | members must include one member representing local governments, |
| 172 | one member representing a state employees' union in the Regular |
| 173 | Class, one member representing a teachers' union, one member |
| 174 | representing a police union, one member representing a |
| 175 | firefighters' union, and one beneficiary of the Florida |
| 176 | Retirement System. These individuals shall possess special |
| 177 | knowledge, experience, and familiarity with financial |
| 178 | investments and portfolio management. Members shall be appointed |
| 179 | for 4-year terms. A vacancy shall be filled for the remainder of |
| 180 | the unexpired term. The council shall annually elect a chair and |
| 181 | a vice chair from its membership. A member may not be elected to |
| 182 | consecutive terms as chair or vice chair. Members of the council |
| 183 | are state officers for purposes of s. 112.3145. |
| 184 | Section 5. Subsection (15) of section 215.47, Florida |
| 185 | Statutes, is amended to read: |
| 186 | 215.47 Investments; authorized securities; loan of |
| 187 | securities.--Subject to the limitations and conditions of the |
| 188 | State Constitution or of the trust agreement relating to a trust |
| 189 | fund, moneys available for investments under ss. 215.44-215.53 |
| 190 | may be invested as follows: |
| 191 | (15) With no more, in the aggregate, than 10 percent of |
| 192 | any fund in alternative investments, as defined in s. |
| 193 | 215.44(9)(c)1.a. s. 215.44(8)(c)1.a., through participation in |
| 194 | the vehicles defined in s. 215.44(9)(c)1.b. s. 215.44(8)(c)1.b., |
| 195 | or in securities or investments that are not publicly traded and |
| 196 | are not otherwise authorized by this section. |
| 197 | Section 6. Section 215.475, Florida Statutes, is amended |
| 198 | to read: |
| 199 | 215.475 Investment policy statement.-- |
| 200 | (1) In making investments for the System Trust Fund |
| 201 | pursuant to ss. 215.44-215.53, the board shall make no |
| 202 | investment which is not in conformance with the Florida |
| 203 | Retirement System Defined Benefit Plan Investment Policy |
| 204 | Statement, hereinafter referred to as "the IPS," as developed by |
| 205 | the executive director and the Investment Advisory Council and |
| 206 | approved by the board. The IPS must include, among other items, |
| 207 | the investment objectives of the System Trust Fund; permitted |
| 208 | types of securities in which the board may invest; and |
| 209 | evaluation criteria necessary to measure the investment |
| 210 | performance of the fund. As required from time to time, the |
| 211 | executive director of the board may present recommended changes |
| 212 | in the IPS to the board and the Investment Advisory Council for |
| 213 | approval. |
| 214 | (2) Prior to any recommended changes in the IPS being |
| 215 | presented to the board, the executive director of the board |
| 216 | shall present such changes to the Investment Advisory Council |
| 217 | for review. The council shall present the results of its review |
| 218 | to the board prior to the board's final approval of the IPS or |
| 219 | changes in the IPS. |
| 220 | Section 7. Section 215.4754, Florida Statutes, is created |
| 221 | to read: |
| 222 | 215.4754 Ethics requirements for investment advisers and |
| 223 | managers.-- |
| 224 | (1) The board shall adopt by rule standards of conduct |
| 225 | applicable to investment advisers and managers retained pursuant |
| 226 | to s. 215.44(2)(b). |
| 227 | (2) A contract under which an investment adviser or |
| 228 | manager renders financial services or advice to the board is |
| 229 | voidable by the board if the investment adviser or manager |
| 230 | violates a standard of conduct adopted under this section. |
| 231 | (3) An Investment Advisory Council member or such member's |
| 232 | business organization or affiliate may not directly or |
| 233 | indirectly contract with or provide any services for the |
| 234 | investment of state trust funds during the time of such member's |
| 235 | service on the council or for 1 year thereafter. |
| 236 | Section 8. Section 215.4755, Florida Statutes, is created |
| 237 | to read: |
| 238 | 215.4755 Disclosure requirements for investment advisers |
| 239 | and managers.-- |
| 240 | (1) An investment adviser or manager retained pursuant to |
| 241 | s. 215.44(2)(b) shall disclose in writing to the board: |
| 242 | (a) Any relationship the investment adviser or manager has |
| 243 | with any party to a transaction with the board, other than a |
| 244 | relationship necessary to the investment or funds-management |
| 245 | services that the investment adviser or manager performs for the |
| 246 | board, if a prudent person could expect the relationship to |
| 247 | diminish the investment adviser's or manager's independence of |
| 248 | judgment in the performance of his or her responsibilities to |
| 249 | the board. The investment adviser or manager shall disclose a |
| 250 | relationship described in this paragraph without regard to |
| 251 | whether the relationship is a direct, indirect, personal, |
| 252 | private, commercial, or business relationship. |
| 253 | (b) All direct or indirect pecuniary interests the |
| 254 | investment adviser or manager has in any party to a transaction |
| 255 | with the board, if the transaction is connected with any |
| 256 | financial advice or service the investment adviser or manager |
| 257 | provides to the board in connection with the management or |
| 258 | investment of funds pursuant to s. 215.44(1). |
| 259 | (2) An investment adviser or manager retained pursuant to |
| 260 | s. 215.44(2)(b) shall annually file a statement with the board |
| 261 | disclosing each relationship or pecuniary interest described by |
| 262 | this section. If no such relationship or pecuniary interest |
| 263 | existed during the disclosure period, the statement must |
| 264 | affirmatively state that fact. |
| 265 | (a) The annual statement shall be filed no later than |
| 266 | January 1 on a form prescribed by the board. The statement shall |
| 267 | cover the reporting period of the previous calendar year. |
| 268 | (b) The investment adviser or manager shall promptly file |
| 269 | a new or amended statement with the board whenever there is new |
| 270 | information to report under this section. |
| 271 | Section 9. Present subsections (9) and (10) of section |
| 272 | 218.409, Florida Statutes, are renumbered as subsections (10) |
| 273 | and (11), respectively, and a new subsection (9) is added to |
| 274 | that section to read: |
| 275 | 218.409 Administration of the trust fund; creation of |
| 276 | advisory council.-- |
| 277 | (9) The State Board of Administration shall create a |
| 278 | participating investor council to advise the board regarding the |
| 279 | investment practices, internal controls and risk assessment, and |
| 280 | audit processes for funds invested by the board pursuant to this |
| 281 | part. |
| 282 | Section 10. This act shall take effect July 1, 2009. |