SB3072

SECTION 1. The legislature finds that this Act is necessary to enable the Hawaii employer-union health benefits trust fund (the "trust fund") to efficiently maintain the confidentiality of information relating to alternative investments such as investments in private equity, private credit, and private real estate funds, consistent with competitive investment market best practices. This will help ensure that the trust fund will not be disadvantaged as a competitive investor due to the public records disclosure requirements of chapter 92F, Hawaii Revised Statutes.

To address the trust fund's unfunded liability, the trust fund, as a prudent investor, engages in diversified investment, including high-yield private alternative investments. Due diligence into such investments requires the trust fund to invest time and money to acquire and analyze detailed proprietary and confidential information regarding the projected performance of each fund. If the trust fund is required to disclose such confidential information, the trust fund is disadvantaged as a competitive investor. Competing investors would be able to acquire, at no cost, the trust fund's investment intelligence, resulting in oversubscription of the trust fund's best investments, reducing the trust fund's access. Further, to the extent that the trust fund may be required to disclose information that the investment funds require to be kept confidential, some high-performing funds are likely, based on their past practices, to be deterred from allowing the trust fund to invest with them.

To serve the public interest in monitoring the trust fund's investment performance, the trust fund already makes publicly available non-confidential aggregate performance data for the entire trust fund investment portfolio in its quarterly performance report, which includes: the name of asset or strategy and the rate of return for the quarter, fiscal year-to-date, one year, three years, five years, ten years, and inception to date.

This Act identifies certain types of alternative investment fund information, the disclosure of which would likely put the trust fund at a competitive disadvantage, and categorically exempts those categories of information from disclosure under chapter 92F, Hawaii Revised Statutes, consistent with market best practices. This Act mirrors Act 71, Session Laws of Hawaii 2021, providing the employees' retirement system of the State of Hawaii the same exemptions.

SECTION 2. Chapter 87A, Hawaii Revised Statutes, is amended by adding to part IV a new section to be appropriately designated and to read as follows:

"§87A- Disclosure of alternative investment information. (a) The following documents relating to the fund's alternative investments shall be exempt from disclosure under chapter 92F:

(1) Private placement memoranda;

(2) Alternative investment vehicle agreements and related documents, including subscription agreements, management agreements, side letters, guarantees, credit facility agreements, participation agreements, and trust documents;

(3) Confidential presentations or recommendations made to the fund;

(4) Due diligence memoranda and other due diligence materials, including due diligence questionnaires;

(5) Documents containing information on any portfolio company, real property, or any other assets held by an alternative investment vehicle;

(6) Financial statements and other documents containing financial information of an alternative investment vehicle or its general partner or manager, whether audited or unaudited, including but not limited to statements or information related to:

(A) Income statements;

(B) Balance sheets;

(D) Capital accounts;

(E) Investment rate-of-returns, including internal rate of returns and time-weighted rate of returns;

(F) Cash or in-kind distributions;

(G) Carried interests;

(H) Management and other fees; and

(I) Return multiples;

(7) Confidential correspondences between an alternative investment vehicle or its general partner, manager, advisor, or limited partner advisory committee, and the fund;

(8) Capital call and distribution notices;

(9) Limited partner advisory committee and limited partner meeting notices, minutes, and materials, including without limitation any materials distributed at those meetings;

(10) Investment management agreements; and

(11) Placement agent disclosures and similar documents.

(b) The exemptions from disclosure under chapter 92F set forth in this section are in addition to any other records that may be exempt from disclosure pursuant to chapter 92F or any other law.

"Alternative investment" means an actual or proposed investment by the fund in a private equity fund, venture fund, hedge fund, fund of funds, absolute return fund, real estate fund, infrastructure fund, private credit, or other similar private market investments.

"Alternative investment vehicle" means the limited partnership, limited liability company, collective investment trust, or other legal structure of the alternative investment.

"Investment management agreement" means a contract to manage assets of the fund.

"Limited partner advisory committee" means any limited partner or other advisory committee of an alternative investment vehicle."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.

INTRODUCED BY:

_____________________________

BY REQUEST

THE SENATE	S.B. NO.	3072
THIRTY-FIRST LEGISLATURE, 2022
STATE OF HAWAII