SENATE COMMITTEE ON LABOR, PUBLIC EMPLOYMENT AND RETIREMENT

Senator Jerry Hill, Chair

2019 - 2020 Regular

Bill No: AB 2473 Hearing Date: August 5, 2020

SUBJECT: Public investment funds

KEY ISSUE

Should the Legislature create an exception to the California Public Records Act to facilitate direct private lending by the California Public Employees’ Retirement System (CalPERS) or the California State Teachers’ Retirement System (CalSTRS)?

ANALYSIS

Existing law:

1. Finds and declares in enacting the California Public Records Act (CPRA), that access to information concerning the conduct of the people's business is a fundamental and necessary right of every person in this state, mindful of the right of individuals to privacy (Government Code § 6250).
2. Provides that public records are open to inspection at all times during the office hours of the state or local agency and every person has a right to inspect any public record, except as provided. Any reasonably segregable portion of a record shall be available for inspection by any person requesting the record after deletion of the portions exempted by law (Government Code § 6253(a)).
3. Requires each state or local agency, upon a request for a copy of records that reasonably describes an identifiable record or records, to make the records promptly available, as specified, except with respect to public records exempt from disclosure by express provisions of law (Government Code § 6253 (b)).
4. Prescribes procedures for governmental agencies to comply with requests for access to public records (Government Code § 6253 (c)).
5. Specifies records not subject to public disclosure (Government Code § 6254 et seq.).
6. Exempts certain records regarding alternative investments in which public investment funds invest, unless the keeper of the information has already publicly released the information. The CPRA defines “public investment fund” as any public pension or retirement system, and any public endowment or foundation” and “alternative investments” as an investment in a private equity fund, venture fund, hedge fund, or absolute return fund (Government Code § 6254. 26).
7. Provides that the boards of California's public retirement systems have plenary authority and fiduciary responsibility for investment of monies and administration of the system (Cal. Const., art. XVI, § 17.).
8. Requires public pension and retirement board members to discharge their duties “solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administrating the system”…and to diversify the fund’s investments so as to minimize the risk of loss and to maximize the rate of return unless under the circumstances it is clearly not prudent to do so (Cal. Const., art. XVI, § 17.).
9. Retains the Legislature’s authority to continue to prohibit certain investments by a retirement board where it is in the public interest to do so, and if the prohibition satisfies the standards of fiduciary care and loyalty required of a retirement board (Cal. Const., art. XVI, § 17.).

This bill:

1. Exempts from the California Public Records Act (CPRA) the following records regarding an internally managed private loan made directly by the California Public Employees’ Retirement System (CalPERS) or the California State Teachers’ Retirement System (CalSTRS) unless the information has already been publicly released by the keeper of the information:

a) Due diligence materials that are proprietary to the public investment fund, any participating underwriting syndicate, the borrower, or any of the borrower’s constituent owners or guarantors.

b) Private loan agreements and all related documents.

c) Personal or business identifying information contained in records that would disclose the identities of any constituent owners of the borrower, regardless of whether the constituent owner is a person or legal entity.

d) Quarterly and annual financial statements of the borrower or its constituent owners.

e) Materials relating to collateral pledged in support of the private loan.

f) Meeting materials of creditors’ committees.

1. Requires the following related information to continue to be subject to CPRA disclosure and deems the information not a trade secret exempt from disclosure:

a) The name and address of each borrower.

b) The dollar amount of each private loan made to each borrower by the public investment fund since inception.

c) The annualized time-weighted return of each private loan.

1. Provides that records related to a public investment fund’s indirect funding of a private loan via a fund or other type of externally managed investment vehicle shall remain subject to CPRA disclosure, as specified.
2. Defines “Public investment fund” for purposes of this bill to mean the Public Employees’ Retirement Fund described in Section 2170 of this code, and the Teachers’ Retirement Fund described in Section 22400 of the Education Code.
3. Makes legislative findings and declarations that the bill strikes a balance between preserving the right of the public to access information about how public funds are invested while also protecting the privacy of loan recipients and proprietary information provided to public investment funds.

COMMENTS

1. California Public Records Act (CPRA)

In a normal Legislative session, the Senate Judiciary Committee would have had the opportunity to hear this bill. Unfortunately, the constraints of the Covid19 pandemic require adjustments to our regular practice. However, committee staff consulted with staff from the Judiciary Committee who contributed the following information:

This bill contains provisions that are within the jurisdiction of Senate Judiciary Committee, specifically the limitation on the right of access to public records. The California Public Records Act (CPRA) was enacted to balance the privacy rights of individuals and the right of the people to know about the conduct of public business. (N.Y. Times v. Superior Court (1990) 218 Cal. App. 3d 1579, at 1584.) Access to information concerning the conduct of the people’s business is a fundamental and necessary right of every person in this state. (Gov. Cod § 6250.)  In 2004, the right of public access was enshrined in the California Constitution with the passage of Proposition 59 (Nov. 3, 2004, statewide general election). That proposition amended the California Constitution to specifically protect the right of the public to access and obtain government records by stating “[t]he people have the right of access to information concerning the conduct of the people’s business, and therefore . . . the writings of public officials and agencies shall be open to public scrutiny” and required any statute that limits the right of access to include findings that demonstrate the interest protected by the limitation and the need for protecting that interest. (Cal. Const., art. I, sec. 3, subd. (b).)

The CPRA defines a public record as any writing containing information relating to the conduct of the public’s business prepared, owned, used, or retained by any state or local agency regardless of physical form or characteristics. (Gov. Code § 6252(e).) Certain records are expressly prohibited from being disclosed and other records are permissively exempted from being disclosed. (See e.g. Gov. Code §§ 6254 & 6254.29.) This bill would create an express prohibition on certain information contained in public records from being disclosed to the public. The Senate Judiciary Committee has historically strived to ensure that bills which limit access to public records strike an appropriate balance between protecting the privacy of personal and proprietary information contained in public records while ensuring that the public retains the right to access public records, especially when it involves access to records regarding the use of public funds. The Legislature may wish to consider whether the provisions of this bill strike an appropriate balance between privacy rights of individuals and the public’s fundamental right to access information in order to know about the conduct of the people’s business.

2. Private Debt Instruments

According to the author,

A private debt investment involves direct lending to a public or private issuer seeking funds for operations, growth, or other purposes. Private debt is not traded on an exchange and provides additional options for borrowers beyond a traditional bank loan. For CalPERS, this investment strategy presents an opportunity to earn a higher yield and the ability to achieve additional diversification. Private debt strategies include, but are not limited to, direct lending, fund investments, collateralized loan obligations, and asset-based lending.

After the financial crisis, global regulators placed enhanced regulatory capital requirements on banks, resulting in lower leverage ratios and a reduction in the amount of lending many banks could have achieved in the past. Subsequently, the private debt market is rapidly expanding and becoming more competitive, with active participation by external managers and institutional investors. Several private debt funds are available as an alternative, but at significantly higher fee levels and reduced control and transparency in comparison with what could be expected to be achieved by CalPERS investment professionals.

3. CalPERS' Investment Strategy: "Toward a 7% Solution – More Assets, Better Assets"

CalPERS’ actuarial valuations assume a 7% rate of return (or discount rate) on investments. The discount rate is a key factor in determining the system’s unfunded actuarial obligation and how much public employers and employees must contribute annually to the system to fund accruing benefits and pay down unfunded liability. If CalPERS fails to achieve the discount rate over time, unfunded liability and contribution rates go up and fewer dollars are available for other state and public agency priorities.

Current economic conditions, monetary and fiscal policy, and other market distortions have resulted in high valuations, low returns, and high volatility for traditional public equity and fixed income assets. These conditions make achieving the 7% discount rate challenging.

According to CalPERS,

The solution is based on "better assets" and "more assets" and will capitalize on CalPERS's advantages: a long-term investment horizon and access to private asset classes.

CalPERS must diversify and increase exposure to private assets, such as private equity and private credit. We refer to these as "better assets" because they have the potential for higher returns and lower expected volatility when compared with publicly traded assets.

"More assets" refers to a plan to use leverage, or borrowing, to increase the base of the assets generating returns in the portfolio. Leverage allows CalPERS to take advantage of low interest rates by borrowing and using those funds to acquire assets with potentially higher returns.^[1]

According to the State Treasurer, an ex-officio CalPERS Board Member,

"More assets" is an important companion to "better assets." It simply means that CalPERS will consider using a moderate amount of leverage, or borrowed capital, to acquire more base assets that can generate additional returns for the portfolio. I understand any discussion of leverage to purchase assets can sound risky, and some commentators have disagreed with this concept. I appreciate this and agree that any type of borrowing carries some level of uncertainty. However, not all investors possess the demonstrable expertise to manage leverage the way CalPERS can. Fundamentally, what works best about this strategy is that it plays to CalPERS' strength of being an asset owner with a long-term investment horizon and not one forced to focus on quarterly results.^[2]

4. Need for CPRA Exemption for Private Debt Investments

According to the author,

The underwriting of certain private debt investments requires significant due diligence, including a comprehensive review of the borrower’s financial condition, credit history, and collateral. CalPERS would receive and review various forms of documentation and records from borrowers. Public disclosure of certain documentation and records would impair CalPERS’ ability to participate fully in future private debt investment opportunities.

Supporters argue that this bill is necessary to open opportunities for CalPERS to participate in direct lending with counterparties in private markets who otherwise would be unwilling to work with CalPERS if their information was subject to CPRA disclosure. Although CalPERS can invest in private lending through external investment managers and private equity funds, those vehicles are more costly and provide less control to CalPERS. Finally, supporters note that there already exists a CPRA exemption for private equity investments and the need for this bill is consistent with the rationale for the private equity exemption.

Opponents argue that pension funds already can and do invest in private lending through external investment managers and with borrowers willing to be subject to existing CPRA. Therefore, there is no reason to sacrifice the public’s right to access CalPERS’ investment activities in direct lending. Creating a CPRA exemption for this asset class makes CalPERS’ activities less transparent, creates risk, and makes the system more susceptible to misuse or fraud because the public cannot monitor potential conflicts of interest. Furthermore, they note that private debt investment instruments are fundamentally different from private equity instruments. The Retired Public Employees Association (RPEA) states, “As specifically defined in AB 2473 a “Private Loan” is a loan or debt that, unlike Private Equity, is ‘exempt from registration as a security under federal securities laws.’  There are no ‘partners’ who might otherwise not fall under the CPRA, and no SEC or Comptroller oversight.  The entire rationale for GC 6254.26 and 7514.7 is inapplicable to these ‘Private Loans,’ as they are simply unregulated banking to outside borrowers, not partnerships.”  

5. Committee Comments

The CPRA Exemption

Committee staff recognizes that CPRA issues are not generally in the purview of this committee. However, staff notes that this bill presents a conflict between two important values in California constitutional law: 1) the right of the people to know what actions their government is taking and 2) the independence of public pension funds to make prudent investments to ensure the retirement security of public employees while minimizing costs to the taxpayers.

Committee staff is sensitive to the view that the public’s right to disclosure should outweigh an individual investor or borrower’s right to privacy to maintain their anonymity in their investment transactions in this case. Transparency and public oversight are critical checks on potential fraud and abuse of public funds. However, the committee must also weigh the enormous burden placed on California’s public agencies and taxpayers as our public pension systems struggle to earn their assumed rate of return under current conditions. The committee may reasonably rely on the judgement and expertise of our top investment management professionals, including our State Treasurer, who are telling us that access to private debt investments is critical to achieving our pension funding goals; that potential risks are mitigated by fund policies, limitations, and board oversight; and that this bill is necessary to remove a roadblock to that access.

Regarding CalPERS Investment Strategy

Whether CalPERS’ investment strategy is appropriate rests squarely in the purview of the CalPERS Board of Administration. The constitution grants the board plenary authority to determine how to administer and invest the fund’s assets (barring a constitutionally firm, legislative prohibition). The board members and its investment staff are fiduciaries to CalPERS’ beneficiaries. Their choices have stark consequences for the state and generate great public interest. Nevertheless, the people, through the constitution, have placed that decision authority with the board.

Of course, that does not mean the Legislature need acquiesce to any request from exemptions from laws to which the pension funds must adhere to facilitate their investment decisions. The Legislature will analyze each such request in light of the particular circumstances, priorities, and policy objectives at the time and balancing all of the many component interests of the people of California. Here, the balance is close and the right answer may eventually depend on whether our state’s public investment professionals are more like Warren Buffett or more like Bernie Madoff. Nevertheless, CalPERS presents a logical case for its request. Moreover, the following factors mitigate the committee’s concerns: this particular asset class remains a small portion of the fund’s overall portfolio; CalPERS and CalSTRS operate under substantial public and media vigilance; the systems each have a large, sophisticated investment staff with relevant expertise; and the systems each have a state-level oversight board.

Limits the Definition of “Public Investment Fund” to CalPERS and CalSTRS

In prior versions, AB 2473 applied the CPRA exemption to far more institutions than just CalPERS and CalSTRS by default of an overbroad definition of public investment funds. It defined public investment funds as “a public pension or retirement system or a public endowment or foundation”. The committee received no request nor any letters of support from any of the many other local and independent public pension, endowment, or foundation funds.

Since many of those funds operate under substantially less scrutiny from the public, the media, and the Legislature; and also operate with smaller staff who have fewer resources, the committee, balancing the interests of public disclosure and pension fund independence as described above, and noting the differences between private equity and private debt, believes it is prudent to limit this CPRA exemption to CalPERS and CalSTRS, which has similar qualities that justify the exemption. The author accepted the committee’s recommended amendments, along with a more appropriate statement of the Legislature’s findings and declarations regarding the balancing of interests in considering this exemption to the CPRA.

6. Proponent Arguments

According to CalPERS,

This bill establishes a structure to protect the information of private loan borrowers, consistent with existing law. Without a structure that potential borrowers understand and can trust, internally managed private loan investments cannot be pursued. As such, paralleling this bill with existing disclosure requirements for public pension investments in alternative investment vehicles is critical for consistency. In addition, this bill includes clear disclosure requirements that ensure the public has access to the performance of private loan investments directly managed by CalPERS staff.

According to the California Professional Firefighters,

Private debt is an investment strategy that presents an opportunity for CalPERS to earn a higher yield and achieve additional diversification. Under current law, certain records relating to alternative investments with public investment funds are not subject to public disclosure unless the information has already been publicly released by the keeper of the information; there is no such exemption for private debt investments. The underwriting of certain private debt investments requires significant due diligence, including a comprehensive review of the borrower’s financial condition, credit history, and collateral. Public disclosure of certain documents, such as these, would impair CalPERS’ ability to participate fully in future private debt investment opportunities.

7. Opponent Arguments:

According to the Retired Public Employees' Association of California,

The terms and parties to any loan of funds held in public trust, once executed, are matters necessary for members of the public to assess whether CalPERS staff and the CalPERS Board are acting in the best interests of the taxpayers, the members, and the beneficiaries. Any entity seeking investment of funds held in trust for the public must be willing to subject themselves to a certain level of scrutiny that they would not necessarily face in the private market. In the current low- (and even no-) return investment environment, there is a strong temptation to make deals which might not be in the best interest of the public. A public pension trust fund is not in a position to gamble in hopes of “hitting it big” on a long-shot with poor odds of success. Secret investments of public trust funds are never in the public’s interest.

According to the City of Pasadena,

Because it is necessary for the public to understand whether the terms of the proposed private loans are prudent risks, the loan agreements and documents, the personal or business identifying information disclosing the identities and the constituent owners of the borrower, and materials relating to collateral pledged must not be exempted from the CPRA, but only after negotiations. Only then may the public, the members and beneficiaries independently determine whether CalPERS staff have negotiated a good deal and whether the CalPERS Board are acting as sound fiduciaries.

9. Prior Legislation:

AB 857 (Chiu), Chapter 442, Statutes of 2019, authorized “public bank” as a corporation, organized as either a nonprofit mutual benefit corporation or a nonprofit public benefit corporation for engaging in the commercial banking business or industrial banking business that is wholly owned by a local agency, as specified, local agencies, or a joint powers authority. AB 857 exempted specified information and records of a public bank, and related decisions of the directors, officers, and managers of the public bank, from the CPRA’s disclosure requirements, including, among others, records related to alternative investments of the bank, as specified, and an investment agreement, loan agreement, deposit agreement, or a related document.

SB 439 (Simitian), Chapter 258, Statutes of 2005, exempted from disclosure certain investment data and information related to alternative investments made by public retirement systems, including company-level information.

SUPPORT

California Public Employees’ Retirement System

California Professional Firefighters

OPPOSITION

California Alliance for Retired Ameicans

California State University Emeritus and Retired Faculty and Staff Association

City of Pasadena

Peace and Freedom Party of California

Retired Public Employees' Association of California

-- END --

1. “CalPERS Prepares for the Long Haul”, Ben Meng, Wall Street Journal, June 14, 2020, 3:47 pm ET ↑

2. “Commentary: CalPERS new investment strategy is the right plan at the right time”, Fiona Ma, Pensions & Investments. July 20, 2020, 8:00 AM. ↑

SENATE COMMITTEE ON LABOR, PUBLIC EMPLOYMENT AND RETIREMENT

Senator Jerry Hill, Chair

2019 - 2020 Regular

Bill No: AB 2473 Hearing Date: August 5, 2020

SUBJECT: Public investment funds

KEY ISSUE

Should the Legislature create an exception to the California Public Records Act to facilitate direct private lending by the California Public Employees’ Retirement System (CalPERS) or the California State Teachers’ Retirement System (CalSTRS)?

ANALYSIS

Existing law:

1. Finds and declares in enacting the California Public Records Act (CPRA), that access to information concerning the conduct of the people's business is a fundamental and necessary right of every person in this state, mindful of the right of individuals to privacy (Government Code § 6250).
2. Provides that public records are open to inspection at all times during the office hours of the state or local agency and every person has a right to inspect any public record, except as provided. Any reasonably segregable portion of a record shall be available for inspection by any person requesting the record after deletion of the portions exempted by law (Government Code § 6253(a)).
3. Requires each state or local agency, upon a request for a copy of records that reasonably describes an identifiable record or records, to make the records promptly available, as specified, except with respect to public records exempt from disclosure by express provisions of law (Government Code § 6253 (b)).
4. Prescribes procedures for governmental agencies to comply with requests for access to public records (Government Code § 6253 (c)).
5. Specifies records not subject to public disclosure (Government Code § 6254 et seq.).
6. Exempts certain records regarding alternative investments in which public investment funds invest, unless the keeper of the information has already publicly released the information. The CPRA defines “public investment fund” as any public pension or retirement system, and any public endowment or foundation” and “alternative investments” as an investment in a private equity fund, venture fund, hedge fund, or absolute return fund (Government Code § 6254. 26).
7. Provides that the boards of California's public retirement systems have plenary authority and fiduciary responsibility for investment of monies and administration of the system (Cal. Const., art. XVI, § 17.).
8. Requires public pension and retirement board members to discharge their duties “solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administrating the system”…and to diversify the fund’s investments so as to minimize the risk of loss and to maximize the rate of return unless under the circumstances it is clearly not prudent to do so (Cal. Const., art. XVI, § 17.).
9. Retains the Legislature’s authority to continue to prohibit certain investments by a retirement board where it is in the public interest to do so, and if the prohibition satisfies the standards of fiduciary care and loyalty required of a retirement board (Cal. Const., art. XVI, § 17.).

This bill:

1. Exempts from the California Public Records Act (CPRA) the following records regarding an internally managed private loan made directly by the California Public Employees’ Retirement System (CalPERS) or the California State Teachers’ Retirement System (CalSTRS) unless the information has already been publicly released by the keeper of the information:

a) Due diligence materials that are proprietary to the public investment fund, any participating underwriting syndicate, the borrower, or any of the borrower’s constituent owners or guarantors.

b) Private loan agreements and all related documents.

c) Personal or business identifying information contained in records that would disclose the identities of any constituent owners of the borrower, regardless of whether the constituent owner is a person or legal entity.

d) Quarterly and annual financial statements of the borrower or its constituent owners.

e) Materials relating to collateral pledged in support of the private loan.

f) Meeting materials of creditors’ committees.

1. Requires the following related information to continue to be subject to CPRA disclosure and deems the information not a trade secret exempt from disclosure:

a) The name and address of each borrower.

b) The dollar amount of each private loan made to each borrower by the public investment fund since inception.

c) The annualized time-weighted return of each private loan.

1. Defines “Public investment fund” for purposes of this bill to mean the Public Employees’ Retirement Fund described in Section 20062 of this code, and the Teachers’ Retirement Fund described in Section 22167 of the Education Code.
2. Makes legislative findings and declarations that the bill strikes a balance between preserving the right of the public to access information about how public funds are invested while also protecting the privacy of loan recipients and proprietary information provided to public investment funds.

COMMENTS

1. California Public Records Act (CPRA)

In a normal Legislative session, the Senate Judiciary Committee would have had the opportunity to hear this bill. Unfortunately, the constraints of the Covid19 pandemic require adjustments to our regular practice. However, committee staff consulted with staff from the Judiciary Committee who contributed the following information:

This bill contains provisions that are within the jurisdiction of Senate Judiciary Committee, specifically the limitation on the right of access to public records. The California Public Records Act (CPRA) was enacted to balance the privacy rights of individuals and the right of the people to know about the conduct of public business. (N.Y. Times v. Superior Court (1990) 218 Cal. App. 3d 1579, at 1584.) Access to information concerning the conduct of the people’s business is a fundamental and necessary right of every person in this state. (Gov. Cod § 6250.)  In 2004, the right of public access was enshrined in the California Constitution with the passage of Proposition 59 (Nov. 3, 2004, statewide general election). That proposition amended the California Constitution to specifically protect the right of the public to access and obtain government records by stating “[t]he people have the right of access to information concerning the conduct of the people’s business, and therefore . . . the writings of public officials and agencies shall be open to public scrutiny” and required any statute that limits the right of access to include findings that demonstrate the interest protected by the limitation and the need for protecting that interest. (Cal. Const., art. I, sec. 3, subd. (b).)

The CPRA defines a public record as any writing containing information relating to the conduct of the public’s business prepared, owned, used, or retained by any state or local agency regardless of physical form or characteristics. (Gov. Code § 6252(e).) Certain records are expressly prohibited from being disclosed and other records are permissively exempted from being disclosed. (See e.g. Gov. Code §§ 6254 & 6254.29.) This bill would create an express prohibition on certain information contained in public records from being disclosed to the public. The Senate Judiciary Committee has historically strived to ensure that bills which limit access to public records strike an appropriate balance between protecting the privacy of personal and proprietary information contained in public records while ensuring that the public retains the right to access public records, especially when it involves access to records regarding the use of public funds. The Legislature may wish to consider whether the provisions of this bill strike an appropriate balance between privacy rights of individuals and the public’s fundamental right to access information in order to know about the conduct of the people’s business.

2. Private Debt Instruments

According to the author,

A private debt investment involves direct lending to a public or private issuer seeking funds for operations, growth, or other purposes. Private debt is not traded on an exchange and provides additional options for borrowers beyond a traditional bank loan. For CalPERS, this investment strategy presents an opportunity to earn a higher yield and the ability to achieve additional diversification. Private debt strategies include, but are not limited to, direct lending, fund investments, collateralized loan obligations, and asset-based lending.

After the financial crisis, global regulators placed enhanced regulatory capital requirements on banks, resulting in lower leverage ratios and a reduction in the amount of lending many banks could have achieved in the past. Subsequently, the private debt market is rapidly expanding and becoming more competitive, with active participation by external managers and institutional investors. Several private debt funds are available as an alternative, but at significantly higher fee levels and reduced control and transparency in comparison with what could be expected to be achieved by CalPERS investment professionals.

3. CalPERS' Investment Strategy: "Toward a 7% Solution – More Assets, Better Assets"

CalPERS’ actuarial valuations assume a 7% rate of return (or discount rate) on investments. The discount rate is a key factor in determining the system’s unfunded actuarial obligation and how much public employers and employees must contribute annually to the system to fund accruing benefits and pay down unfunded liability. If CalPERS fails to achieve the discount rate over time, unfunded liability and contribution rates go up and fewer dollars are available for other state and public agency priorities.

Current economic conditions, monetary and fiscal policy, and other market distortions have resulted in high valuations, low returns, and high volatility for traditional public equity and fixed income assets. These conditions make achieving the 7% discount rate challenging.

According to CalPERS’ Chief Investment Officer,

The solution is based on "better assets" and "more assets" and will capitalize on CalPERS's advantages: a long-term investment horizon and access to private asset classes.

CalPERS must diversify and increase exposure to private assets, such as private equity and private credit. We refer to these as "better assets" because they have the potential for higher returns and lower expected volatility when compared with publicly traded assets.

"More assets" refers to a plan to use leverage, or borrowing, to increase the base of the assets generating returns in the portfolio. Leverage allows CalPERS to take advantage of low interest rates by borrowing and using those funds to acquire assets with potentially higher returns.^[1]

According to the State Treasurer, an ex-officio CalPERS Board Member,

"More assets" is an important companion to "better assets." It simply means that CalPERS will consider using a moderate amount of leverage, or borrowed capital, to acquire more base assets that can generate additional returns for the portfolio. I understand any discussion of leverage to purchase assets can sound risky, and some commentators have disagreed with this concept. I appreciate this and agree that any type of borrowing carries some level of uncertainty. However, not all investors possess the demonstrable expertise to manage leverage the way CalPERS can. Fundamentally, what works best about this strategy is that it plays to CalPERS' strength of being an asset owner with a long-term investment horizon and not one forced to focus on quarterly results.^[2]

4. Need for CPRA Exemption for Private Debt Investments

According to the author,

The underwriting of certain private debt investments requires significant due diligence, including a comprehensive review of the borrower’s financial condition, credit history, and collateral. CalPERS would receive and review various forms of documentation and records from borrowers. Public disclosure of certain documentation and records would impair CalPERS’ ability to participate fully in future private debt investment opportunities.

Supporters argue that this bill is necessary to open opportunities for CalPERS to participate in direct lending with counterparties in private markets who otherwise would be unwilling to work with CalPERS if their information was subject to CPRA disclosure. Although CalPERS can invest in private lending through external investment managers and private equity funds, those vehicles are more costly and provide less control to CalPERS. Finally, supporters note that there already exists a CPRA exemption for private equity investments and the need for this bill is consistent with the rationale for the private equity exemption.

Opponents argue that pension funds already can and do invest in private lending through external investment managers and with borrowers willing to be subject to existing CPRA. Therefore, there is no reason to sacrifice the public’s right to access CalPERS’ investment activities in direct lending. Creating a CPRA exemption for this asset class makes CalPERS’ activities less transparent, creates risk, and makes the system more susceptible to misuse or fraud because the public cannot monitor potential conflicts of interest. Furthermore, they note that private debt investment instruments are fundamentally different from private equity instruments. The Retired Public Employees Association (RPEA) states, “As specifically defined in AB 2473 a “Private Loan” is a loan or debt that, unlike Private Equity, is ‘exempt from registration as a security under federal securities laws.’  There are no ‘partners’ who might otherwise not fall under the CPRA, and no SEC or Comptroller oversight.  The entire rationale for GC 6254.26 and 7514.7 is inapplicable to these ‘Private Loans,’ as they are simply unregulated banking to outside borrowers, not partnerships.”  

5. Committee Comments

The CPRA Exemption

Committee staff recognizes that CPRA issues are not generally in the purview of this committee. However, staff notes that this bill presents a conflict between two important values in California constitutional law: 1) the right of the people to know what actions their government is taking and 2) the independence of public pension funds to make prudent investments to ensure the retirement security of public employees while minimizing costs to the taxpayers.

Committee staff is sensitive to the view that the public’s right to disclosure should outweigh an individual investor or borrower’s right to privacy to maintain their anonymity in their investment transactions in this case. Transparency and public oversight are critical checks on potential fraud and abuse of public funds. However, the committee must also weigh the enormous burden placed on California’s public agencies and taxpayers as our public pension systems struggle to earn their assumed rate of return under current conditions. The committee may reasonably rely on the judgement and expertise of our top investment management professionals, including our State Treasurer, who are telling us that access to private debt investments is critical to achieving our pension funding goals; that potential risks are mitigated by fund policies, limitations, and board oversight; and that this bill is necessary to remove a roadblock to that access.

Regarding CalPERS Investment Strategy

Whether CalPERS’ investment strategy is appropriate rests squarely in the purview of the CalPERS Board of Administration. The constitution grants the board plenary authority to determine how to administer and invest the fund’s assets (barring a constitutionally firm, legislative prohibition). The board members and its investment staff are fiduciaries to CalPERS’ beneficiaries. Their choices have stark consequences for the state and generate great public interest. Nevertheless, the people, through the constitution, have placed that decision authority with the board.

Of course, that does not mean the Legislature need acquiesce to any request from exemptions from laws to which the pension funds must adhere to facilitate their investment decisions. The Legislature will analyze each such request in light of the particular circumstances, priorities, and policy objectives at the time and balancing all of the many component interests of the people of California. Here, the balance is close and the right answer may eventually depend on whether our state’s public investment professionals are more like Warren Buffett or more like Bernie Madoff. Nevertheless, CalPERS presents a logical case for its request. Moreover, the following factors mitigate the committee’s concerns: this particular asset class remains a small portion of the fund’s overall portfolio; CalPERS and CalSTRS operate under substantial public and media vigilance; the systems each have a large, sophisticated investment staff with relevant expertise; and the systems each have a state-level oversight board.

Limits the Definition of “Public Investment Fund” to CalPERS and CalSTRS

In prior versions, AB 2473 applied the CPRA exemption to far more institutions than just CalPERS and CalSTRS by default of an overbroad definition of public investment funds. It defined public investment funds as “a public pension or retirement system or a public endowment or foundation”. The committee received no request nor any letters of support from any of the many other local and independent public pension, endowment, or foundation funds.

Since many of those funds operate under substantially less scrutiny from the public, the media, and the Legislature; and also operate with smaller staff who have fewer resources, the committee, balancing the interests of public disclosure and pension fund independence as described above, and noting the differences between private equity and private debt, believes it is prudent to limit this CPRA exemption to CalPERS and CalSTRS, which has similar qualities that justify the exemption. The author accepted the committee’s recommended amendments, along with a more appropriate statement of the Legislature’s findings and declarations regarding the balancing of interests in considering this exemption to the CPRA.

6. Proponent Arguments

According to CalPERS,

This bill establishes a structure to protect the information of private loan borrowers, consistent with existing law. Without a structure that potential borrowers understand and can trust, internally managed private loan investments cannot be pursued. As such, paralleling this bill with existing disclosure requirements for public pension investments in alternative investment vehicles is critical for consistency. In addition, this bill includes clear disclosure requirements that ensure the public has access to the performance of private loan investments directly managed by CalPERS staff.

According to the California Professional Firefighters,

Private debt is an investment strategy that presents an opportunity for CalPERS to earn a higher yield and achieve additional diversification. Under current law, certain records relating to alternative investments with public investment funds are not subject to public disclosure unless the information has already been publicly released by the keeper of the information; there is no such exemption for private debt investments. The underwriting of certain private debt investments requires significant due diligence, including a comprehensive review of the borrower’s financial condition, credit history, and collateral. Public disclosure of certain documents, such as these, would impair CalPERS’ ability to participate fully in future private debt investment opportunities.

7. Opponent Arguments:

According to the Retired Public Employees' Association of California,

The terms and parties to any loan of funds held in public trust, once executed, are matters necessary for members of the public to assess whether CalPERS staff and the CalPERS Board are acting in the best interests of the taxpayers, the members, and the beneficiaries. Any entity seeking investment of funds held in trust for the public must be willing to subject themselves to a certain level of scrutiny that they would not necessarily face in the private market. In the current low- (and even no-) return investment environment, there is a strong temptation to make deals which might not be in the best interest of the public. A public pension trust fund is not in a position to gamble in hopes of “hitting it big” on a long-shot with poor odds of success. Secret investments of public trust funds are never in the public’s interest.

According to the City of Pasadena,

The terms and parties to any loan of funds held in public trust, once executed, are matters necessary for members of the public to assess whether CalPERS staff and the CalPERS Board are acting in the best interests of taxpayers, the members, and the beneficiaries. Any entity seeking investment of funds held in trust for the public must be willing to subject themselves to a certain level of scrutiny that they would not necessarily face in the private market. In the current low- or no-return investment environment, there is a strong temptation to makes deals which might not be in the best interest of the public. Secret investment of public trust funds are never in the public’s interest.

9. Prior Legislation:

AB 857 (Chiu), Chapter 442, Statutes of 2019, authorized “public bank” as a corporation, organized as either a nonprofit mutual benefit corporation or a nonprofit public benefit corporation for engaging in the commercial banking business or industrial banking business that is wholly owned by a local agency, as specified, local agencies, or a joint powers authority. AB 857 exempted specified information and records of a public bank, and related decisions of the directors, officers, and managers of the public bank, from the CPRA’s disclosure requirements, including, among others, records related to alternative investments of the bank, as specified, and an investment agreement, loan agreement, deposit agreement, or a related document.

SB 439 (Simitian), Chapter 258, Statutes of 2005, exempted from disclosure certain investment data and information related to alternative investments made by public retirement systems, including company-level information.

SUPPORT

California Public Employees’ Retirement System

California Professional Firefighters

OPPOSITION

California Alliance for Retired Ameicans

California State University Emeritus and Retired Faculty and Staff Association

City of Pasadena

Peace and Freedom Party of California

Retired Public Employees' Association of California

-- END --

1. “CalPERS Prepares for the Long Haul”, Ben Meng, Wall Street Journal, June 14, 2020, 3:47 pm ET ↑

2. “Commentary: CalPERS new investment strategy is the right plan at the right time”, Fiona Ma, Pensions & Investments. July 20, 2020, 8:00 AM. ↑

ASSEMBLY THIRD READING

ATR Bill Id:AB 2473

Author:(Cooper)

As Amended Ver:June 3, 2020

Majority vote

SUMMARY:

Makes changes to the Public Records Act (PRA) relating to investments by a public investment fund, among other provisions.

Major Provisions

1. Exempts the following records regarding an internally managed private loan made by a public investment fund, unless the information has already been publicly released by the keeper of the information:
2. Due diligence materials are proprietary to the public investment fund, any participating underwriting syndicate, the borrower, or any of the borrower's constituent owners or guarantors.
3. Private loan agreements and all related documents.
4. Personal or business identifying information contained in records that would disclose the identities of constituent owners of the borrower, regardless of whether the constituent owner is a person or legal entity.
5. Quarterly and annual financial statements of the borrower or its constituent owners.
6. Materials relating to collateral pledged in support of the private loan, and meeting materials of creditors' committees.
7. Provides for records that are subject to disclosure and not considered a trade secret exempt from disclosure:
8. The name and address of each borrower.
9. The dollar amount of each private loan made to each borrower by the public investment fund since inception.
10. The annualized time-weighted return of each private loan.
11. The aggregate amount of undrawn loan commitments for each private loan.
12. The amount of principal and interest payments made to the public investment fund by each borrower since the inception of the loan.
13. Whether the loan has been in default for at least six months for each private loan.
14. Provides that records related to a public investment fund's indirect funding of a private loan via fund or other type of externally managed investment vehicle are subject to existing PRA law, at least an annual disclosure, as specified.

Here, existing PRA law exempts disclosure of alternative investments in which public investment funds invest, unless the information has already been publicly released by the keeper of the information (see Section 6254.26 of the Government (Gov.) Code), but maintains at least an annual public disclosure (see Section 7514.7 of the Gov. Code).

1. Includes legislative findings and declarations, and definitions, for these purposes.

COMMENTS:

"There is estimated to be over $600 billion allocated to private-debt investments by institutional investors, with the most active investors being pension funds, endowments, and insurance companies. Private debt is not traded on an exchange and provides additional options for borrowers beyond a traditional bank loan. For CalPERS, this investment strategy presents an opportunity to earn a higher yield and the ability to achieve additional diversification. Due to the recent world-wide crisis it is now more important than ever to give CalPERS all the tools necessary to make the best investments possible to protect current and future pensioners. This bill is a small step in that direction."

According to the Author:

Increased Competition Among Investors in the Investment Market

Earlier this year, the California Public Employees' Retirement System (CalPERS) held assets that, for the first time in its history, exceeded $400 billion. Although CalPERS is the largest public employee pension fund in the nation, it must compete with other investors (private and public) that may be larger in terms of assets and global reach relative to investment opportunities.

While the overall pool of investors is not as large as some might consider relative to the overall size of the investment market, the availability of investment opportunities continues to become increasingly competitive; and thus, not as numerous, or, where public pensions systems can timely avail themselves of such opportunities. In addition, while CalPERS is a public entity with appropriate investment influence relative to its existing investment holdings, it is a public entity that is subject to certain public disclosures which, at times, narrow available investment opportunities because its competitors may not be subject to similar public disclosure requirements. Such disclosures place CalPERS in a competitive investment disadvantage when potential investment opportunities would rather accept investment monies from investors not bound by, or subject to, similar requirements.

During the Great Recession, CalPERS incurred losses of approximately $100 billion as a result of the global economic downturn. Although those losses were for the mast part, recovered, it took over a decade to recover those losses, not including any compounding of interest yields that otherwise could have been earned on those investments. Its recovery proceeded concerning its overall funded status which financially impacts all participating public agencies, present and future retirees, and the state budget.

CalPERS recently incurred investment losses as result of the global novel coronavirus pandemic and substantial fluctuations in the investment market that were unforeseen by the vast majority of investors. CalPERS has taken steps to refocus its portfolio of investments and made changes to its investment strategy; however, additional steps are needed to ensure the continued financial solvency of the fund; assist public employers relative to contribution rates, and to ensure that promises made by public employers to present and future retirees are maintained.

Affording CalPERS the investment flexibility to, pursuant to its fiduciary responsibilities, compete with other investors, including those larger, if not substantially larger, should be considered. This bill would provide such flexibility to CalPERS and other public employee retirement funds.

Arguments in Support:

According to CalPERS, this bill would "…mitigate the competitive disadvantage to the state's public pension funds under existing state law in accessing private-debt investment opportunities, while ensuring full and complete public access to the data needed to evaluate investment performance. This bill parallels existing disclosure requirements for public pension investments in alternative investment vehicles."

The California Professional Firefighters state in part that, "Private debt is an investment strategy that presents an opportunity for CalPERS to earn a higher yield and achieve additional diversification. The strength and health of the retirement fund is of paramount priority for firefighters."

Arguments in Opposition:

The Retired Public Employees Association states that, "[it] does not believe that CalPERS should become an unregulated shadow bank. While CalPERS has plenary authority over many things and can do much of this without legislative oversight, the Legislature can determine how big the blanket of secrecy CalPERS should have as it pertains to the [PRA]," and that, "…the beneficiaries, the Legislature, the public and the press should be able to observe the actions of the Board."

FISCAL COMMENTS:

According to the Assembly Appropriations Committee, this bill would result in "no additional state costs."

VOTES:

ASM PUBLIC EMPLOYMENT AND RETIREMENT: 7-0-0

YES: Rodriguez, Voepel, Cooley, Cooper, Fong, O'Donnell, Reyes

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bauer-Kahan, Bloom, Bonta, Calderon, Carrillo, Chau, Megan Dahle, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Petrie-Norris, McCarty, Robert Rivas, Voepel

UPDATED:

VERSION: June 3, 2020

CONSULTANT: Michael Bolden / P.E. & R. / (916) 319-3957 FN: 0002820

Date of Hearing: June 2, 2020

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 2473

Author:(Cooper) – As Introduced Ver:February 19, 2020

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill exempts from the Public Records Act (PRA) certain information related to internally managed private loans made directly by a public investment fund. Specifically, this bill:

1. Exempts from the PRA the following information related to these loans: proprietary “due diligence” materials, private loan agreements and all related documents, quarterly and annual financial statements of (and records with information on) the borrower or its constituent owners, materials related to collateral pledged in support of the private loan, and meeting materials of creditors’ committees or similar records.
2. Requires the following information to remain subject to the PRA: the name and address of each borrower, the amount of each private loan to each borrower, the annualized time-weighted return of each private loan, and the aggregate amount of undrawn loan commitments for each private loan.

FISCAL EFFECT:

No additional state costs.

COMMENTS:

1. Background. While a significant share of California’s public retirement systems’ portfolios are in stocks and bonds (around 80% in the case of the California Public Employee Retirement System (CalPERS)), public retirement systems also use alternative investments to diversify their portfolio and seek higher returns. CalPERS, for example, has recently been more vocal about private debt investments, which generally involve direct lending to a public or private issuer.

A recent article in Pensions & Investments highlights CalPERS’ emerging interest in private debt investments:

More recently, [CalPERS’ Chief Investment Officer] Mr. Meng guided a discussion on the topic of private credit, noting that private debt was currently not an asset class in the system's portfolio. "I think that's something we overlooked in the past, particularly given the changes in regulation after the global financial crisis," he said late last year. "So currently, it's not in our portfolio. We think it should be."^[1]

1. PRA. The PRA provides the public access to information managed by state and local agencies. Covered records include all communications related to public business. Public agencies must provide immediate access to information and aid in identifying relevant information. Certain exemptions to the PRA exist, including court records, material covered by attorney-client privilege, and records of federal agencies and the Legislature. This bill will additionally exempt certain types of investment information from PRA disclosure requirements.
2. Purpose. This bill is sponsored by CalPERS and is meant to allow CalPERS to be more competitive in pursuing private debt investment strategies. CalPERS notes that the “underwriting of certain private debt investments requires significant due diligence” and “public disclosure of certain documents…would impair CalPERS ability to participate fully in future private debt investments opportunities.”
3. Other PRA exemptions. SB 439 (Simitian), Chapter 258, Statutes of 2006, exempted from disclosure certain investment data and information related to alternative investments made by public retirement systems, including company-level information.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

1. Arleen Jacobius, “CalPERS walking its own path on asset allocation,” Pensions & Investments, 2/10/2020, available at https://www.pionline.com/pi-1000-largest-retirement-plans/calpers-walking-its-own-path-asset-allocation ↑

Date of Hearing: May 5, 2020

ASSEMBLY COMMITTEE ON PUBLIC EMPLOYMENT AND RETIREMENT

Freddie Rodriguez, Chair

ABPCA Bill Id:AB 2473 (

Author:Cooper) – As Introduced Ver:February 19, 2020

SUBJECT: Public investment funds

SUMMARY: Makes changes to the Public Records Act (PRA) relating to investments by a public investment fund, among other provisions. Specifically, this bill:

1. Exempts the following records regarding an internally managed private loan made by a public investment fund, unless the information has already been publicly released by the keeper of the information:
2. Due diligence materials are proprietary to the public investment fund, any participating underwriting syndicate, the borrower, or any of the borrower’s constituent owners or guarantors.
3. Private loan agreements and all related documents.
4. Records containing information regarding the borrower or its constituent owners.
5. Quarterly and annual financial statements of the borrower or its constituent owners.
6. Materials relating to collateral pledged in support of the private loan.
7. Provides for records that are subject to disclosure and not considered a trade secret exempt from disclosure:
8. The name and address of each borrower.
9. The dollar amount of each private loan made to each borrower by the public investment fund since inception.
10. The annualized time-weighted return of each private loan.
11. The aggregate amount of undrawn loan commitments for each private loan.
12. Provides that records related to a public investment fund’s indirect funding of a private loan via fund or other type of externally managed investment vehicle are subject to existing PRA law, at least an annual disclosure, as specified.

Here, existing PRA law exempts disclosure of alternative investments in which public investment funds invest, unless the information has already been publicly released by the keeper of the information (see Section 6254.26 of the Government (Gov.) Code), but maintains at least an annual public disclosure (see Section 7514.7 of the Gov. Code).

1. Defines the following terms:
2. “Private loan” to mean a loan made to or evidenced by a loan agreement, debt instrument, other evidence of indebtedness, if that lending arrangement is exempt from registration as a security under federal securities laws.
3. “Public investment fund” to man a public pension or retirement system or a public endowment or foundation.
4. Includes a legislative finding and declaration that this act is necessary to protect information that is not appropriate for public disclosure.

EXISTING LAW:

1. Provides, pursuant to Section 17 of Article XVI of the California Constitution, that the boards of California's public retirement systems have "plenary authority and fiduciary responsibility for [the] investment of monies and administration of the system."
2. Provides under the California Constitution that "the members of the retirement board of a public pension or retirement system shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administrating the system…[and] the board shall diversify the investments of the system so as to minimize the risk of loss and to maximize the rate of return unless under the circumstances it is clearly prudent to do so."^[1]
3. Provides under the California Constitution that the Legislature retains its authority to, by statute, "continue to prohibit certain investments by a retirement board where it is in the public interest to do so, and provided that the prohibition satisfies the standards of fiduciary care and loyalty required of a retirement board pursuant to this section."^[2]
4. Known as the Public Records Act, exempts certain records regarding alternative investments in which public investment funds invest, unless the information has already been publicly released by the keeper of the information, from public disclosure.^[3]

FISCAL EFFECT: Unknown. This bill is flagged as fiscal by Legislative Counsel.

COMMENTS: According to the author, “There is estimated to be over $600 billion allocated to private-debt investments by institutional investors, with the most active investors being pension funds, endowments, and insurance companies. Private debt is not traded on an exchange and provides additional options for borrowers beyond a traditional bank loan. For CalPERS, this investment strategy presents an opportunity to earn a higher yield and the ability to achieve additional diversification. Due to the recent world-wide crisis it is now more important than ever to give CalPERS all the tools necessary to make the best investments possible to protect current and future pensioners. This bill is a small step in that direction.”

1. Competition Among Investors in the Investment Marketplace

Earlier this year, the California Public Employees’ Retirement System (CalPERS) held assets that, for the first time in its history, exceeded $400 billion. Although CalPERS is the largest public employee pension fund in the nation, it must compete with other investors (private and institutional) that may be larger in terms of assets and global reach relative to investment opportunities. Nearly 65 percent of each dollar necessary to pay a retirement allowance to retired members comes from the performance of CalPERS’ investments. The remainder are from employer and employee contributions.

While the overall pool of investors is not as large as some might consider relative to the overall size of the investment market, the availability of investment opportunities continues to become increasingly competitive; and thus, not as numerous, or, where public pensions systems can timely avail themselves of such opportunities. In addition, while CalPERS is a public entity with substantial investment influence relative to its existing investment holdings, it is a public entity that is subject to certain public disclosures which, at times, narrow available investment opportunities because others (i.e., other public are not subject to similar public disclosures. Such disclosures place CalPERS in a competitive investment disadvantage when potential investment opportunities would rather accept investment monies from investors not bound by, or subject to, similar requirements.

During the Great Recession, CalPERS incurred losses of approximately $100 billion as a result of the global economic downturn. Although those losses were for the mast part, recovered, it took over a decade to recover those losses, not including any compounding of interest yields that otherwise could have been earned on those investments. Its recovery proceeded concerning its overall funded status which financially impacts all participating public agencies, present and future retirees, and the state budget.

CalPERS recently incurred investment losses as result of the global novel coronavirus pandemic and substantial fluctuations in the investment market that were unforeseen by the vast majority of investors. CalPERS has taken steps to refocus its portfolio of investments and made changes to its investment strategy; however, additional steps are needed to ensure the continued financial solvency of the fund; assist public employers relative to contribution rates, promises made to present and future retirees are maintained, and future costs to the state General Fund.

Affording CalPERS the investment flexibility to, pursuant to its fiduciary responsibilities, compete with other investors, including those larger, if not substantially larger, should be considered.

1. Comments by Supporters

According to CalPERS, this bill would “…mitigate the competitive disadvantage to the state’s public pension funds under existing state law in accessing private-debt investment opportunities, while ensuring full and complete public access to the data needed to evaluate investment performance. This bill parallels existing disclosure requirements for public pension investments in alternative investment vehicles.”

The California Professional Firefighters state in part that, “Private debt is an investment strategy that presents an opportunity for CalPERS to earn a higher yield and achieve additional diversification. The strength and health of the retirement fund is of paramount priority for firefighters.”

1. Prior or Related Legislation

Chapter 258, Statutes of 2005 (Senate Bill 439, Simitian) added certain exemptions to the California Public Records Act relating to pension fund investments.

Chapter 442, Statutes of 2019 (Assembly Bill 857, Chiu) exempts certain information and records from public disclosure relating to a public bank.

REGISTERED SUPPORT / OPPOSITION:

Support

California Public Employees’ Retirement System (Sponsor)

California Professional Firefighters

Opposition

None on file

Analysis Prepared by: Irene Reteguin / P.E. & R. / (916) 319-3957

1. See California Constitution, ibid. ↑

2. Ibid. ↑

3. See Section 6254.26 of the Government Code. ↑