The private equity disclosure battle took a surprising turn late last month, when Mass. Gov. Mitt Romney vetoed legislation that would have exempted the state retirement system from having to open up its private equity investment portfolio to public scrutiny.
Romney had not previously issued any opinion on the matter. But it was expected he would approve any bill that was so strongly favored by the private equity industry, given that he is a co-founder and CEO of Bain Capital.
Legislators added the anti-disclosure measure to the 2005 budget earlier this year, at which point it headed to conference committee. The initial language was vague, particularly in terms of not specifying what types of information were to be protected.
Similar legislation in Colorado referred explicitly to underlying asset data (fund portfolio company information), while a Michigan law covered both underlying asset data and top-line fund data (such as fund-specific IRRs, disbursement rates, etc.). The proposed Massachusetts bill, however, was open to interpretation.
It read, in part: “Any documentary material or data made or received by any person of the state investment board, which consists of trade secrets or commercial or financial information that relates to the investment of public trust or retirement funds, shall not be disclosed to the public if disclosure is likely to impair the government’s ability to obtain such information in the future or is likely to cause substantial harm to the competitive position of the person or entity from which the information was obtained.”
There is no clear definition of what types of materials would “impair the government’s ability.” The conference committee was expected to rectify such problems, but it did not do so. In a May interview with Buyouts-prior to the bill emerging from committee-Mass. Deputy Treasurer Doug Rubin said that his office was supporting a Colorado model, whereby underlying asset data would be protected, but top-line performance data would be made available for semi-mature funds, (funds that are at least three years old).
Rubin’s office declined to say why such specificity was not added, and said Rubin would have no comment until the situation “is resolved by the legislature.” However, Gubernatorial Press Secretary Shawn Feddeman said that Romney felt that the public interest and private equity interest did not intersect in this case, and that transparency should not be sacrificed for the possible sake of better retirement system investment opportunities.
She added that Romney had not seen the bill before it hit his desk, although Buyouts had made two requests through Feddeman for comment while the measure sat in committee. She declined to say on whether or not Romney would approve a bill that only restricts disclosure of underlying assets, saying that he would have to first examine the actual language.
There is no word on whether the Democrat-controlled Massachusetts legislature will attempt to override the line-item veto, but it wouldn’t be surprising. Democratic legislators and Democratic Treasurer Tim Cahill, who often butt heads with Republican Romney, sponsored the bill.
In the meantime, Romney’s move could open the door to an open records request for underlying asset data, although no such request has ever been filed with the state retirement system. To date, the system has received three requests for top-line data, although Cahill has refused to honor the requests, in defiance of a 1-year-old order to do so from Mass. Attorney General Tom Reilly, a Democrat.