For Texans, the civilized world begins at the Rio Grande and ends at the Red River and everything in between is better and bigger than everything else. The private equity portion of the endowment for the biggest chunk of the state’s public universities is not the biggest private equity portfolio in the game, but it’s big enough that any funny moves will make a barrel-full of GPs uneasy.
And since it released the returns of its private equity portfolio to the public, it’s sure making the biggest stir in the game. Despite confidentiality agreements, the unversities’ endowment, UTIMCO, publicized the returns of 136 partnerships
“My general sense is that it was public pressure – from the press and public interest groups – rather than partisan political pressure [that forced UTIMCO’s hand],” says Craig McDonald, executive director of Texans for Public Justice – a public interest group based right there in Austin. “But, it was definitely pressure.”
The story with Texas and disclosure goes back three years, but only in the wake of a parade of scandals led by Houston-based Enron, have the rumblings gathered public momentum. It all began with Houston Chronicle Reporter R.G. Ratcliffe’s investigation into investment contracts awarded by UTIMCO – the board membership of which is at the discretion of the governor, which at the time was George W. Bush.
Ratcliffe penned an expose in March 1999 stating that the board had awarded $457 million worth of the investment contracts in the $1.7 billion private portion of the endowment to associates of UTIMCO’s then-Chairman and Bush-supporter Tom Hicks and to other Bush supporters, such as the hedge-fund-managing Wyly brothers and the Carlyle Group.
A week later, UTIMCO announced it would release information about private fund managers, including IRRs, upon request. Bear in mind, this was in 1999. After the original furor died down, the board quietly reversed its disclosure position. When the Chronicle noticed that the information was no longer public in late August 2002, it began another series of stinging stories and editorials.
In the meantime, Texas Attorney General John Cornyn had blocked requests from two individuals to release the private equity information. Texas law allows the Attorney General to conceal the proceedings of public entities if those entities present a compelling case for secrecy. In a twist to this story, Cornyn, a Republican, was at the time seeking a seat in the U.S. Senate, which he wound up winning.
However before the tale became too twisted, the new chancellor of the University of Texas System and UTIMCO’s Chairman publically said they favored disclosure. Without an objection to disclosure, Cornyn did not have to make a decision on the matter, but he, his opponent and both gubernatorial candidates came out supporting disclosure. This, of course, left only the private equity managers and UTIMCO staff to sort out the mess.
“Today, it’s unacceptable for deals with the public’s money to go on behind closed doors,” says Andrew Wheat, research director of Texans for Public Justice. “This is the public’s money. We own it.”
On Election Day, Cornyn, incidentally, won that Senate seat, and Incumbent Republican Governor Rick Perry retained his seat.
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