Colorado Aims To Make Public LPs Disclosure Friendly

Colorado Gov. Bill Owens is poised to sign into law a bill that would protect portfolio company valuations, in an effort to appease venture funds that are worried about disclosure.

Expected to be signed into law next week, the bill will forbid the state’s treasurer and public pension funds from disclosing any information that might affect the value of a private equity investment. Any portfolio company information that affects a fund’s value, in other words, will be off limits.

“Things like a private company’s plans or its prototypes will be kept confidential because it’s proprietary and not in the public arena, ” says Katie Kaufmanis, director of communications for the Colorado Public Employees’ Retirement System (CoPERA). CoPERA manages a $2.6 billion private equity portfolio.

What will remain available for public consumption is the amount of capital an investor such as CoPERA commits to a fund, what distributions it has received and the fund’s internal rates of return. CoPERA already publishes that information on its Web site.

Colorado appears to be reacting to moves by at least three venture firms to kick out or exclude public LPs – similar to CoPERA – from their funds.

Among the firms that have not allowed public LPs in their recent funds are Charles River Ventures, Sequoia Capital and Woodside Fund.

“[Initial returns] for early-stage companies look terrible, and they’re not terribly helpful in evaluating a private equity fund’s performance,” says John Garrett, a managing director with Meritage Private Equity Funds in Denver. “Premature reporting of portfolio company information will affect private equity investment in a bad way and discourage investment in early-stage funds because of the adverse political consequences of holding an early-stage company that has no revenue and an operating loss.”

The bill will write into law what San Francisco Superior Court Judge James Robertson mandated when he ordered the California Public Employees’ Retirement System and the California State Teachers’ Retirement System to open their books, following a Freedom of Information Act suit filed by the San Jose Mercury News in November 2002.

Colorado’s law will go into effect 90 days after the governor signs it.

Colorado’s venture capital community introduced the bill at the start of this year’s legislative session. CoPERA testified in support of it.