The University of California has decided to live by the letter of private equity disclosure law. Abiding by that law?s spirit, however, is another matter.
On Oct. 3, the school released internal rate of return (IRR) data for all of its active private equity partnerships, in accordance with a lower court ruling that had been upheld over two appeals (see charts, pages 16 and 17). Its initial disclosure on Oct. 1 presented IRRs that were more than 15 months old (See PE Week, Oct 6, pg. 1). After receiving requests for current returns from Private Equity Week and the San Jose Mercury News, UC released IRRs that had been calculated in March of this year.
What was missing, however, was any context. Thomson Venture Economics, (publisher of PE Week), analyzed the data and was able to identify the vintage years of each fund and its investment focus. Further, Thomson VE compared each fund?s performance against the pooled performance of similar funds from the same vintage year. That analysis shows that UC?s best investment was in Kleiner Perkins Caufield & Byers VIII, a 1996 venture fund which had a 286.6% IRR as of March, placing it in the top quartile of fund performance, according to Thomson VE. UC?s worst investment was in Ripplewood Capital Partners II, a vintage 2000 LBO fund that had a ?43.4% IRR as of March, ranking its performance in the bottom quartile of similar funds.
As interesting as the IRRs are, there is no way to know how well UC’s investments are performing, since it declined to reveal how much capital it committed to each of its funds. For example, if it bet big on KPC&B VIII, it would be doing exceedingly well, but if it ploughed a big chunk of money into Ripplewood Capital Partners II it would be in a bad way.
An attorney representing UC says that it revealed only the IRRs because that is all that a judge required it to produce. The initial public records act request by the Mercury News sought only IRRs. A subsequent filing asked for “all reports, documents and other public records showing the performance of private equity investments made by UC, including but not limited to documents showing the internal rate of return…” In his ruling, the judge in the case said it was “limited to the IRRs and the minutes and tapes” of meetings by UC’s investment committee.
The Mercury News has filed or plans to file a new public records act request, asking for cash-in/cash-out figures and data to gauge the performance of UC’s other investments, but it is unclear if UC will honor the request. An attorney who represents two parties that requested the IRRs said he would not rule out filing another suit against UC to compel it to release more data, just as other public pension funds have done.
“If they continue to take a grudging attitude toward disclosure by releasing IRR with no context or components, they will not serve the public and they won’t even serve the best interests of the partnerships on whose behalf they have waged this long battle,” plaintiff’s attorney Karl Olson told the Mercury News last week.
UC has said that it is evaluating the situation, but has not decided to release the additional information.