Bill Text: IL SB1671 | 2019-2020 | 101st General Assembly | Engrossed
Bill Title: Reinserts the provisions of the introduced bill with the following changes. Provides that "emerging investment manager" means a qualified investment adviser that manages an investment portfolio of at least $10,000,000 but less than $20,000,000,000 (instead of $10,000,000,000) at the time of the initial contract with the retirement system, pension fund, or investment board and is a minority-owned business, women-owned business, or business owned by a person with a disability. Defines "qualified manager of emerging investment managers services". In a provision requiring a competitive process for awarding investment contracts, adds an exclusion for contracts for investment services with an emerging investment manager provided through a qualified manager of emerging investment managers services. In a provision requiring contracts for investment services to include certain disclosures regarding subcontractors, excludes from the definition of "subcontractor" qualified managers of emerging investment managers services. Provides that based upon a written recommendation from an investment adviser providing qualified manager of emerging investment managers services for the selection or appointment of an emerging investment manager that has been providing investment services in the multimanager portfolio for at least 24 months, the board of a retirement system, pension fund, or investment board may select or appoint such emerging investment manager based upon such recommendation. Requires a qualified manager of emerging investment managers services to comply with specified requirements concerning written contracts.
Spectrum: Partisan Bill (Democrat 3-0)
Status: (Failed) 2021-01-13 - Session Sine Die [SB1671 Detail]
Download: Illinois-2019-SB1671-Engrossed.html
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1 | AN ACT concerning public employee benefits.
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2 | Be it enacted by the People of the State of Illinois,
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3 | represented in the General Assembly:
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4 | Section 5. The Illinois Pension Code is amended by changing | ||||||
5 | Sections 1-109.1 and 1-113.14 and by adding Section 1-113.15a | ||||||
6 | as follows:
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7 | (40 ILCS 5/1-109.1) (from Ch. 108 1/2, par. 1-109.1)
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8 | Sec. 1-109.1. Allocation and delegation of fiduciary | ||||||
9 | duties.
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10 | (1) Subject to the provisions of Section 22A-113 of this | ||||||
11 | Code and
subsections (2) and (3) of this Section, the board of | ||||||
12 | trustees of a
retirement system or pension fund established | ||||||
13 | under this Code may:
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14 | (a) Appoint one or more investment managers as | ||||||
15 | fiduciaries to manage
(including the power to acquire and | ||||||
16 | dispose of) any assets of the
retirement system or pension | ||||||
17 | fund; and
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18 | (b) Allocate duties among themselves and designate | ||||||
19 | others as fiduciaries
to carry out specific fiduciary | ||||||
20 | activities other than the management of the
assets of the | ||||||
21 | retirement system or pension fund.
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22 | (2) The board of trustees of a pension fund established | ||||||
23 | under Article 5, 6,
8, 9, 10, 11, 12 or 17 of this Code may not |
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1 | transfer its investment authority,
nor transfer the assets of | ||||||
2 | the fund to any other person or entity for the
purpose of | ||||||
3 | consolidating or merging its assets and management with any | ||||||
4 | other
pension fund or public investment authority, unless the | ||||||
5 | board resolution
authorizing such transfer is submitted for | ||||||
6 | approval to the contributors and
pensioners of the fund at | ||||||
7 | elections held not less than 30 days after the
adoption of such | ||||||
8 | resolution by the board, and such resolution is approved by a
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9 | majority of the votes cast on the question in both the | ||||||
10 | contributors election
and the pensioners election. The | ||||||
11 | election procedures and qualifications
governing the election | ||||||
12 | of trustees shall govern the submission of resolutions
for | ||||||
13 | approval under this paragraph, insofar as they may be made | ||||||
14 | applicable.
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15 | (3) Pursuant to subsections (h) and (i) of Section 6 of | ||||||
16 | Article VII of
the Illinois Constitution, the investment | ||||||
17 | authority of boards of trustees
of retirement systems and | ||||||
18 | pension funds established under this Code is declared
to be a | ||||||
19 | subject of exclusive State jurisdiction, and the concurrent | ||||||
20 | exercise
by a home rule unit of any power affecting such | ||||||
21 | investment authority is
hereby specifically denied and | ||||||
22 | preempted.
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23 | (4) For the purposes of this Code, "emerging investment | ||||||
24 | manager" means a
qualified investment adviser that manages an | ||||||
25 | investment portfolio of at
least $10,000,000 but less than | ||||||
26 | $20,000,000,000 at the time of the initial contract with the |
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1 | retirement system, pension fund, or investment board | ||||||
2 | $10,000,000,000 and is a
"minority-owned business", | ||||||
3 | "women-owned business" or "business owned by a person with a | ||||||
4 | disability" as those terms are
defined in the Business | ||||||
5 | Enterprise for Minorities, Women, and Persons with | ||||||
6 | Disabilities Act.
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7 | It is hereby declared to be the public policy of the State | ||||||
8 | of Illinois to
encourage the trustees of public employee | ||||||
9 | retirement systems, pension funds, and investment boards
to use | ||||||
10 | emerging investment managers in managing their system's | ||||||
11 | assets, encompassing all asset classes, and increase the | ||||||
12 | racial, ethnic, and gender diversity of its fiduciaries, to the
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13 | greatest extent feasible within the bounds of financial and | ||||||
14 | fiduciary
prudence, and to take affirmative steps to remove any | ||||||
15 | barriers to the full
participation in investment opportunities
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16 | afforded by those retirement systems, pension funds, and | ||||||
17 | investment boards.
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18 | On or before January 1, 2010, a retirement system, pension | ||||||
19 | fund, or investment board subject to this Code, except those | ||||||
20 | whose investments are restricted by Section 1-113.2 of this | ||||||
21 | Code, shall adopt a policy that sets forth goals for | ||||||
22 | utilization of emerging investment managers. This policy shall | ||||||
23 | include quantifiable goals for the management of assets in | ||||||
24 | specific asset classes by emerging investment managers. The | ||||||
25 | retirement system, pension fund, or investment board shall | ||||||
26 | establish 3 separate goals for: (i) emerging investment |
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1 | managers that are minority-owned businesses; (ii) emerging | ||||||
2 | investment managers that are women-owned businesses; and (iii) | ||||||
3 | emerging investment managers that are businesses owned by a | ||||||
4 | person with a disability. The goals established shall be based | ||||||
5 | on the percentage of total dollar amount of investment service | ||||||
6 | contracts let to minority-owned businesses, women-owned | ||||||
7 | businesses, and businesses owned by a person with a disability, | ||||||
8 | as those terms are defined in the Business Enterprise for | ||||||
9 | Minorities, Women, and Persons with Disabilities Act. The | ||||||
10 | retirement system, pension fund, or investment board shall | ||||||
11 | annually review the goals established under this subsection. | ||||||
12 | If in any case an emerging investment manager meets the | ||||||
13 | criteria established by a board for a specific search and meets | ||||||
14 | the criteria established by a consultant for that search, then | ||||||
15 | that emerging investment manager shall receive an invitation by | ||||||
16 | the board of trustees, or an investment committee of the board | ||||||
17 | of trustees, to present his or her firm for final consideration | ||||||
18 | of a contract. In the case where multiple emerging investment | ||||||
19 | managers meet the criteria of this Section, the staff may | ||||||
20 | choose the most qualified firm or firms to present to the | ||||||
21 | board.
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22 | The use of an emerging investment manager does not | ||||||
23 | constitute a transfer
of investment authority for the purposes | ||||||
24 | of subsection (2) of this Section.
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25 | (5) Each retirement system, pension fund, or investment | ||||||
26 | board subject to this Code, except those whose investments are |
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1 | restricted by Section 1-113.2 of this Code, shall establish a | ||||||
2 | policy that sets forth goals for increasing the racial, ethnic, | ||||||
3 | and gender diversity of its fiduciaries, including its | ||||||
4 | consultants and senior staff. Each retirement system, pension | ||||||
5 | fund, or
investment board shall make its best efforts to ensure | ||||||
6 | that
the racial and ethnic makeup of its senior administrative
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7 | staff represents the racial and ethnic makeup of its
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8 | membership. Each system, fund, and investment board shall | ||||||
9 | annually review the goals established under this subsection. | ||||||
10 | (6) On or before January 1, 2010, a retirement system, | ||||||
11 | pension fund, or investment board subject to this Code, except | ||||||
12 | those whose investments are restricted by Section 1-113.2 of | ||||||
13 | this Code, shall adopt a policy that sets forth goals for | ||||||
14 | utilization of businesses owned by minorities, women, and | ||||||
15 | persons with disabilities for all contracts and services. The | ||||||
16 | goals established shall be based on the percentage of total | ||||||
17 | dollar amount of all contracts let to minority-owned | ||||||
18 | businesses, women-owned businesses, and businesses owned by a | ||||||
19 | person with a disability, as those terms are defined in the | ||||||
20 | Business Enterprise for Minorities, Women, and Persons with | ||||||
21 | Disabilities Act. The retirement system, pension fund, or | ||||||
22 | investment board shall annually review the goals established | ||||||
23 | under this subsection. | ||||||
24 | (7) On or before January 1, 2010, a retirement system, | ||||||
25 | pension fund, or investment board subject to this Code, except | ||||||
26 | those whose investments are restricted by Section 1-113.2 of |
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1 | this Code, shall adopt a policy that sets forth goals for | ||||||
2 | increasing the utilization of minority broker-dealers. For the | ||||||
3 | purposes of this Code, "minority broker-dealer" means a | ||||||
4 | qualified broker-dealer who meets the definition of | ||||||
5 | "minority-owned business", "women-owned business", or | ||||||
6 | "business owned by a person with a disability", as those terms | ||||||
7 | are defined in the Business Enterprise for Minorities, Women, | ||||||
8 | and Persons with Disabilities Act. The retirement system, | ||||||
9 | pension fund, or investment board shall annually review the | ||||||
10 | goals established under this Section. | ||||||
11 | (8) Each retirement system, pension fund, and investment | ||||||
12 | board subject to this Code, except those whose investments are | ||||||
13 | restricted by Section 1-113.2 of this Code, shall submit a | ||||||
14 | report to the Governor and the General Assembly by January 1 of | ||||||
15 | each year that includes the following: (i) the policy adopted | ||||||
16 | under subsection (4) of this Section, including the names and | ||||||
17 | addresses of the emerging investment managers used, percentage | ||||||
18 | of the assets under the investment control of emerging | ||||||
19 | investment managers for the 3 separate goals, and the actions | ||||||
20 | it has undertaken to increase the use of emerging investment | ||||||
21 | managers, including encouraging other investment managers to | ||||||
22 | use emerging investment managers as subcontractors when the | ||||||
23 | opportunity arises; (ii) the policy adopted under subsection | ||||||
24 | (5) of this Section; (iii) the policy adopted under subsection | ||||||
25 | (6) of this Section; (iv) the policy adopted under subsection | ||||||
26 | (7) of this Section, including specific actions undertaken to |
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1 | increase the use of minority broker-dealers; and (v) the policy | ||||||
2 | adopted under subsection (9) of this Section. | ||||||
3 | (9) On or before February 1, 2015, a retirement system, | ||||||
4 | pension fund, or investment board subject to this Code, except | ||||||
5 | those whose investments are restricted by Section 1-113.2 of | ||||||
6 | this Code, shall adopt a policy that sets forth goals for | ||||||
7 | increasing the utilization of minority investment managers. | ||||||
8 | For the purposes of this Code, "minority investment manager" | ||||||
9 | means a qualified investment manager that manages an investment | ||||||
10 | portfolio and meets the definition of "minority-owned | ||||||
11 | business", "women-owned business", or "business owned by a | ||||||
12 | person with a disability", as those terms are defined in the | ||||||
13 | Business Enterprise for Minorities, Women, and Persons with | ||||||
14 | Disabilities Act. | ||||||
15 | It is hereby declared to be the public policy of the State | ||||||
16 | of Illinois to
encourage the trustees of public employee | ||||||
17 | retirement systems, pension funds, and investment boards
to use | ||||||
18 | minority investment managers in managing their systems' | ||||||
19 | assets, encompassing all asset classes, and to increase the | ||||||
20 | racial, ethnic, and gender diversity of their fiduciaries, to | ||||||
21 | the
greatest extent feasible within the bounds of financial and | ||||||
22 | fiduciary
prudence, and to take affirmative steps to remove any | ||||||
23 | barriers to the full
participation in investment opportunities
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24 | afforded by those retirement systems, pension funds, and | ||||||
25 | investment boards. | ||||||
26 | The retirement system, pension fund, or investment board |
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1 | shall establish 3 separate goals for: (i) minority investment | ||||||
2 | managers that are minority-owned businesses; (ii) minority | ||||||
3 | investment managers that are women-owned businesses; and (iii) | ||||||
4 | minority investment managers that are businesses owned by a | ||||||
5 | person with a disability. The retirement system, pension fund, | ||||||
6 | or investment board shall annually review the goals established | ||||||
7 | under this Section. | ||||||
8 | If in any case a minority investment manager meets the | ||||||
9 | criteria established by a board for a specific search and meets | ||||||
10 | the criteria established by a consultant for that search, then | ||||||
11 | that minority investment manager shall receive an invitation by | ||||||
12 | the board of trustees, or an investment committee of the board | ||||||
13 | of trustees, to present his or her firm for final consideration | ||||||
14 | of a contract. In the case where multiple minority investment | ||||||
15 | managers meet the criteria of this Section, the staff may | ||||||
16 | choose the most qualified firm or firms to present to the | ||||||
17 | board. | ||||||
18 | The use of a minority investment manager does not | ||||||
19 | constitute a transfer
of investment authority for the purposes | ||||||
20 | of subsection (2) of this Section. | ||||||
21 | (10) Beginning January 1, 2016, it shall be the | ||||||
22 | aspirational goal for a retirement system, pension fund, or | ||||||
23 | investment board subject to this Code to use emerging | ||||||
24 | investment managers for not less than 20% of the total funds | ||||||
25 | under management. Furthermore, it shall be the aspirational | ||||||
26 | goal that not less than 20% of investment advisors be |
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1 | minorities, women, and persons with disabilities as those terms | ||||||
2 | are defined in the Business Enterprise for Minorities, Women, | ||||||
3 | and Persons with Disabilities Act. It shall be the aspirational | ||||||
4 | goal to utilize businesses owned by minorities, women, and | ||||||
5 | persons with disabilities for not less than 20% of contracts | ||||||
6 | awarded for "information technology services", "accounting | ||||||
7 | services", "insurance brokers", "architectural and engineering | ||||||
8 | services", and "legal services" as those terms are defined in | ||||||
9 | the Act. | ||||||
10 | (Source: P.A. 99-462, eff. 8-25-15; 100-391, eff. 8-25-17; | ||||||
11 | 100-902, eff. 8-17-18.)
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12 | (40 ILCS 5/1-113.14)
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13 | Sec. 1-113.14. Investment services for retirement systems, | ||||||
14 | pension funds, and investment boards, except those funds | ||||||
15 | established under Articles 3 and 4. | ||||||
16 | (a) For the purposes of this Section, "investment services" | ||||||
17 | means services provided by an investment adviser or a | ||||||
18 | consultant other than qualified fund-of-fund management | ||||||
19 | services , as defined in Section 1-113.15 , and qualified manager | ||||||
20 | of emerging investment managers services, as defined in Section | ||||||
21 | 1-113.15a . | ||||||
22 | (b) The selection and appointment of an investment adviser | ||||||
23 | or consultant for investment services by the board of a | ||||||
24 | retirement system, pension fund, or investment board subject to | ||||||
25 | this Code, except those whose investments are restricted by |
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1 | Section 1-113.2, shall be made and awarded in accordance with | ||||||
2 | this Section. All contracts for investment services shall be | ||||||
3 | awarded by the board using a competitive process that is | ||||||
4 | substantially similar to the process required for the | ||||||
5 | procurement of professional and artistic services under | ||||||
6 | Article 35 of the Illinois Procurement Code. Each board of | ||||||
7 | trustees shall adopt a policy in accordance with this | ||||||
8 | subsection (b) within 60 days after the effective date of this | ||||||
9 | amendatory Act of the 96th General Assembly. The policy shall | ||||||
10 | be posted on its web site and filed with the Illinois | ||||||
11 | Procurement Policy Board. Exceptions to this Section are | ||||||
12 | allowed for (i) sole source procurements, (ii) emergency | ||||||
13 | procurements, (iii) at the discretion of the pension fund, | ||||||
14 | retirement system, or board of investment, contracts that are | ||||||
15 | nonrenewable and one year or less in duration, so long as the | ||||||
16 | contract has a value of less than $20,000, and (iv) in the | ||||||
17 | discretion of the pension fund, retirement system, or | ||||||
18 | investment board, contracts for follow-on funds with the same | ||||||
19 | fund sponsor through closed-end funds , (v) contracts for | ||||||
20 | investment services with an emerging investment manager, and | ||||||
21 | (vi) contracts for investment services with an emerging | ||||||
22 | investment manager provided through a qualified manager of | ||||||
23 | emerging investment managers services, as defined in Section | ||||||
24 | 1-113.15a .
All exceptions granted under this Section must be | ||||||
25 | published on the system's, fund's, or board's web site, shall | ||||||
26 | name the person authorizing the procurement, and shall include |
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1 | a brief explanation of the reason for the exception. | ||||||
2 | A person, other than a trustee or an employee of a | ||||||
3 | retirement system, pension fund, or investment board, may not | ||||||
4 | act as a consultant or investment adviser under this Section | ||||||
5 | unless that person is registered as an investment adviser under | ||||||
6 | the federal Investment Advisers Act of 1940 (15 U.S.C. 80b-1, | ||||||
7 | et seq.) or a bank, as defined in the federal Investment | ||||||
8 | Advisers Act of 1940 (15 U.S.C. 80b-1, et seq.). | ||||||
9 | (c) Investment services provided by an investment adviser | ||||||
10 | or a consultant appointed under this Section shall be rendered | ||||||
11 | pursuant to a written contract between the investment adviser | ||||||
12 | or consultant and the board. | ||||||
13 | The contract shall include all of the following: | ||||||
14 | (1) Acknowledgement in writing by the investment | ||||||
15 | adviser or consultant that he or she is a fiduciary with | ||||||
16 | respect to the pension fund or retirement system. | ||||||
17 | (2) The description of the board's investment policy | ||||||
18 | and notice that the policy is subject to change. | ||||||
19 | (3) (i) Full disclosure of direct and indirect fees, | ||||||
20 | commissions, penalties, and other compensation, including | ||||||
21 | reimbursement for expenses, that may be paid by or on | ||||||
22 | behalf of the consultant in connection with the provision | ||||||
23 | of services to the pension fund or retirement system and | ||||||
24 | (ii) a requirement that the consultant update the | ||||||
25 | disclosure promptly after a modification of those payments | ||||||
26 | or an additional payment. |
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1 | (4) A requirement that the investment adviser or | ||||||
2 | consultant, in conjunction with the board's staff, submit | ||||||
3 | periodic written reports, on at least a quarterly basis, | ||||||
4 | for the board's review at its regularly scheduled meetings. | ||||||
5 | All returns on investment shall be reported as net returns | ||||||
6 | after payment of all fees, commissions, and any other | ||||||
7 | compensation. | ||||||
8 | (5) Disclosure of the names and addresses of (i) the | ||||||
9 | consultant or investment adviser; (ii) any entity that is a | ||||||
10 | parent of, or owns a controlling interest in, the | ||||||
11 | consultant or investment adviser; (iii) any entity that is | ||||||
12 | a subsidiary of, or in which a controlling interest is | ||||||
13 | owned by, the consultant or investment adviser; (iv) any | ||||||
14 | persons who have an ownership or distributive income share | ||||||
15 | in the consultant or investment adviser that is in excess | ||||||
16 | of 7.5%; or (v) serves as an executive officer of the | ||||||
17 | consultant or investment adviser. | ||||||
18 | (6) A disclosure of the names and addresses of all | ||||||
19 | subcontractors, if applicable, and the expected amount of | ||||||
20 | money each will receive under the contract, including an | ||||||
21 | acknowledgment that the contractor must promptly make | ||||||
22 | notification, in writing, if at any time during the term of | ||||||
23 | the contract a contractor adds or changes any | ||||||
24 | subcontractors. For purposes of this subparagraph (6), | ||||||
25 | "subcontractor" does not include non-investment related | ||||||
26 | professionals or professionals offering services that are |
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1 | not directly related to the investment of assets, such as | ||||||
2 | legal counsel, actuary, proxy-voting services, services | ||||||
3 | used to track compliance with legal standards, and | ||||||
4 | investment fund of funds , and qualified managers of | ||||||
5 | emerging investment managers services where the board has | ||||||
6 | no direct contractual relationship with the investment | ||||||
7 | advisers or partnerships. | ||||||
8 | (7) A description of service to be performed. | ||||||
9 | (8) A description of the need for the service. | ||||||
10 | (9) A description of the plan for post-performance | ||||||
11 | review. | ||||||
12 | (10) A description of the qualifications necessary. | ||||||
13 | (11) The duration of the contract. | ||||||
14 | (12) The method for charging and measuring cost. | ||||||
15 | (d) Notwithstanding any other provision of law, a | ||||||
16 | retirement system, pension fund, or investment board subject to | ||||||
17 | this Code, except those whose investments are restricted by | ||||||
18 | Section 1-113.2 of this Code, shall not enter into a contract | ||||||
19 | with a consultant that exceeds 5 years in duration. No contract | ||||||
20 | to provide consulting services may be renewed or extended. At | ||||||
21 | the end of the term of a contract, however, the consultant is | ||||||
22 | eligible to compete for a new contract as provided in this | ||||||
23 | Section. No retirement system, pension fund, or investment | ||||||
24 | board shall attempt to avoid or contravene the restrictions of | ||||||
25 | this subsection (d) by any means. | ||||||
26 | (e) Within 60 days after the effective date of this |
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1 | amendatory Act of the 96th General Assembly, each investment | ||||||
2 | adviser or consultant currently providing services or subject | ||||||
3 | to an existing contract for the provision of services must | ||||||
4 | disclose to the board of trustees all direct and indirect fees, | ||||||
5 | commissions, penalties, and other compensation paid by or on | ||||||
6 | behalf of the investment adviser or consultant in connection | ||||||
7 | with the provision of those services and shall update that | ||||||
8 | disclosure promptly after a modification of those payments or | ||||||
9 | an additional payment. The person shall update the disclosure | ||||||
10 | promptly after a modification of those payments or an | ||||||
11 | additional payment. The disclosures required by this | ||||||
12 | subsection (e) shall be in writing and shall include the date | ||||||
13 | and amount of each payment and the name and address of each | ||||||
14 | recipient of a payment. | ||||||
15 | (f) The retirement system, pension fund, or board of | ||||||
16 | investment shall develop uniform documents that shall be used | ||||||
17 | for the solicitation, review, and acceptance of all investment | ||||||
18 | services. The form shall include the terms contained in | ||||||
19 | subsection (c) of this Section. All such uniform documents | ||||||
20 | shall be posted on the retirement system's, pension fund's, or | ||||||
21 | investment board's web site. | ||||||
22 | (g) A description of every contract for investment services | ||||||
23 | shall be posted in a conspicuous manner on the web site of the | ||||||
24 | retirement system, pension fund, or investment board. The | ||||||
25 | description must include the name of the person or entity | ||||||
26 | awarded a contract, the total amount applicable to the |
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1 | contract, the total fees paid or to be paid, and a disclosure | ||||||
2 | approved by the board describing the factors that contributed | ||||||
3 | to the selection of an investment adviser or consultant.
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4 | (Source: P.A. 98-433, eff. 8-16-13.)
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5 | (40 ILCS 5/1-113.15a new) | ||||||
6 | Sec. 1-113.15a. Qualified manager of emerging investment | ||||||
7 | managers services. | ||||||
8 | (a) As used in this Section, "qualified manager of emerging | ||||||
9 | investment managers services" means the services of an | ||||||
10 | investment adviser acting in its capacity as an investment | ||||||
11 | manager of a multimanager portfolio made up of emerging | ||||||
12 | investment managers, as that term is defined in subsection (4) | ||||||
13 | of Section 1-109.1. | ||||||
14 | (b) Based upon a written recommendation from an investment | ||||||
15 | adviser providing qualified manager of emerging investment | ||||||
16 | managers services for the selection or appointment of an | ||||||
17 | emerging investment manager that has been providing investment | ||||||
18 | services in the multimanager portfolio for at least 24 months, | ||||||
19 | the board of a retirement system, pension fund, or investment | ||||||
20 | board may select or appoint such emerging investment manager | ||||||
21 | based upon such recommendation. | ||||||
22 | (c) A qualified manager of emerging investment managers | ||||||
23 | services shall comply with the requirements regarding written | ||||||
24 | contracts set forth in subsection (c) of Section 1-113.14.
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25 | Section 99. Effective date. This Act takes effect upon |
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1 | becoming law.
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