Texas Tells LPs What To Disclose

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. The bill also states that all other types of information are to be kept confidential.

And in light of such developments, Austin Ventures is no longer banning public institutions from participating as LPs in its new fund.

“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,” says Greg Lee, manager of finance and administration for the University of Texas Investment Management Co. (UTIMCO), which Austin had barred from participating in its new fund, which has not yet closed.

Co-sponsored by State Sen. Robert Duncan (R-28) and State Rep. Dan Gattis (R-20), the bill lays out 16 categories of information that public institutions must disclose about the private equity funds in which they have invested. They include such basics as fund name and the date the fund was founded as well as fees paid to the fund and a description of the types of business the fund invests in.

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 such underlying asset information as 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 Perry’s position.

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 had announced in March that it would not allow existing LPs such as UTIMCO, Teachers’ Retirement System of Texas and the Houston Police Officers’ Pension System to subscribe for Austin Ventures’ ninth fund.

Austin Ventures would be open to working with all Texas pension funds that have private equity allocations and were interested in investing with us,” explains Joe Aragona, a general partner with Austin Ventures, and chairman of the National Venture Capital Association.

The firm planned to hold a $525 million final close on Austin Ventures IX at the end of the first quarter, but instead has held a pair of interim closes totaling about $450 million. The final close is now slated for September, with remaining commitments to be filled by prospective strategic investors or public institutions in Texas. If neither of those sources pans out, Aragona says that the firm has enough oversubscription from its already-circled LP base.

Email Daniel.Primack@thomson.com