Texas Draws Disclosure Lines For LPs –

Texas legislators recently passed a bill that defines what types of information must be disclosed by public institutions serving as limited partners in private equity funds. Perhaps more importantly, the bill also states that all other types of information are to be kept confidential.

“We are very happy that the bill draws a bright line between what can and can’t be disclosed, and think that it’s a very positive statement,” said Greg Lee, manager of finance and administration for the University of Texas Investment Management Co. (UTIMCO).

Co-sponsored by State Senator Robert Duncan (R-28) and State Representative Dan Gattis (R-20), the bill lays out 16 different types of information that public institutions must disclose about the private equity funds in which they have invested. (See box).

A subsequent clause in the bill states that any other types of private equity fund information would be excluded from Texas’ Open Records law. This is a significant change from the bill’s initial incarnation, which said that requests for all other types of data would be referred to the Texas Attorney General’s office. Many general and limited partners had expressed discomfort with such a reference, because current Texas AG Greg Abbott supported the disclosure of underlying asset information like portfolio company valuations and revenue statements. Abbott has since reversed course, and said that he approves of the rewritten language.

The bill passed the Texas State Senate by a vote of 30-0 on April 29, and passed the Texas House of Representatives 131-0 on May 18. Because it was approved by more than a two-thirds majority of both legislative chambers, it has officially become law, even without a gubernatorial signature. Texas Gov. Rick Perry has until June 30 to sign, veto or not act on the bill, although the measure seems to have enough support to survive any unlikely veto. A spokesman declined to comment on what Perry plans to do.

The measure should have an immediate impact on public institutions in Texas, which had been operating under a cloud of investment uncertainty during the past several months. For example, Austin Ventures said in March that it would not allow existing LPs like UTIMCO, Teachers’ Retirement System of Texas and the Houston Police Officers’ Pension System to subscribe for Austin Ventures’ ninth fund. It has since reversed that position, in light of the new legislation.

Information To Be Disclosed by Texas LPs

  1. Fund name
  2. Date when fund was established
  3. Date when public institution invested in fund
  4. Amount of money committed to fund
  5. Amount of money called down by fund
  6. Amount of money returned by fund
  7. Internal rate of return (IRR)
  8. Remaining fund value
  9. Amount of fees/compensation paid to fund
  10. Names of fund principals
  11. Any “recusal” by an institution member in conjunction with fund investment action
  12. Description of types of businesses invested in by fund
  13. Minutes/recordings of open portion of institutional meetings in which item on this list
  14. is discussed.
  15. Institution’s percentage of fund interest.
  16. Annual ethics disclosure reports from fund (if existent).
  17. Cash-on-cash returns