Sometimes it looks like a duck and walks like a duck, but it just ain’t a duck.
Such is the case with last month’s settlement between the California Public Employees’ Retirement System (CalPERS) and the San Jose Mercury News over disclosure of CalPERS’ private equity fund performance data. On its surface, the deal looks like a winner for the newspaper, with CalPERS reluctantly agreeing to release internal rates of return (IRRs) and cash-in/cash-out data for all 189 active private equity partnerships within its Alternative Investment Management program (AIM). But just a little scratching reveals that most of the juiciest fund performance data – and the stuff of most interest to tech-obsessed Mercury News readers – won’t see the light of day any time soon.
The information released by CalPERS following the settlement only included funds invested in directly by the AIM program, the vast majority of which were from buyout shops like The Blackstone Group and Hicks, Muse, Tate & Furst. Missing were individual IRRs and names of the nearly 100 venture capital partnerships in which CalPERS had invested via funds managed by Grove Street Advisors, a Wellesley, Mass.-based placement firm first hired by CalPERS in 1998 with a $350 million mandate. Funds within the Grove Street portfolio include offerings from such venture firms as Austin Ventures, Battery Ventures, Jerusalem Venture Partners, Mayfield Fund and New Enterprise Associates.
There seems to be an explanation for why the Grove Street numbers were excluded from the disclosure settlement. Apparently, Grove Street was prepared to take aggressive legal action separate from CalPERS in order to maintain confidentiality agreements with its limited partners.
“The [CalPERS] board was split on whether to disclose its information, but there never really seemed to be any doubt that Grove Street was going to fight, and fight hard,” says a source close to the situation.
Even if the Mercury News had been willing to engage Grove Street in a long and expensive legal battle the newspaper had no assurances of victory. During a preliminary court hearing in November, a San Francisco Superior Court judge asked Mercury News lawyers whether their lawsuit against CalPERS included just IRRs, or also included underlying asset data such as portfolio company valuations. The newspaper indicated that it wanted everything, after which the judge tentatively ruled that underlying assets were protected as trade secret, but that IRRs were not so protected (see PE Week, 12/2/02, pg. 1).
This ruling, and the Mercury News request which preceded it, may have worked in Grove Street’s favor if it had gone to court. While the firm’s aggregate portfolio valuation is fair game (and was released by CalPERS), individual IRRs of Grove Street funds like Battery and Mayfield could be argued to be best categorized as underlying asset valuations.
As for the Mercury News’ take on all of this, a source at the newspaper says that the primary goal of its California Public Records Act request was to uncover any political connections between publicly-elected CalPERS officials and poorly-performing investments. Since the CalPERS board has no oversight over Grove Street investments, the newspaper agreed to settle without the venture information, although the source admits that the information would have been helpful for a more comprehensive data analysis.
The information released by CalPERS on three “California Emerging Ventures” funds managed by Grove Street include an IRR of -15.28% for its 1999 fund, -25.64% for its 2000 fund and -71.96% for its 2002 fund. It is important to note that IRR data is not terribly meaningful of fund performance in the first few years of a fund’s investment life.