The University of California may have lost a last ditch legal effort to keep its private equity data under wraps, but that doesn’t mean that the school is opening up all its books.
Earlier this week, UC received word that the state Supreme Court had rejected its appeal of a lower court mandate that it must disclose internal rates of return (IRR) for each of its 94 private equity fund investments. Following the decision, a UC spokesman said that the information would be released within a few days. What he didn’t say, however, was that the released information would be over one year past its prime.
Rather than releasing information through the second or third quarters of 2003, UC disclosed IRR data through June 30, 2002. For comparison’s sake, this is older data than has been released by other public institutions like the California Public Employees’ Retirement Systems (CalPERS) and the University of Texas Investment Management Co. (UTIMCO). Not only was this information outdated and failed to include cash-in/cash-out data, but the school also reneged on a reported pledge to make the data easily available on a UC Web site. In fact, PE Week was rebuffed when it tried to get a copy of the UC spreadsheet last night, because the publication could not file a formal Open Records Act request by press time.
(The San Jose Mercury News — which had filed the original court complaint against UC, received the information and shared it with this publication. See chart in Monday’s print edition)
“It’s stunning, the level of arrogance and contempt they have for the court process,” says Karl Olson, an attorney who represents the Coalition of University Employees and Charles Schwartz, a retired UC professor, who sued UC along with the Mercury News. “They’re not going to behave like CalPERS or any other public pension fund. They’re saying to the public, ‘Screw you.'”
Steven Mayer, an attorney representing UC, says that the university responded appropriately. “The lawsuit was about IRRs,” says Mayer, of San Francisco’s Howard, Rice, Nemerovski, Canady, Falk & Rabkin.
Asked why UC didn’t make more current IRRs available, UC attorney Steven Mayer says: “The short answer is that they haven’t been requested.”
The Mercury News and the other plaintiffs made their public records act request on Dec. 24, 2002. In that request, they asked for “all documents showing the internal rate of return of any private equity investments which have been made by the University of California,” according to court records. In April, they asked the court to force the UC to produce “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 …” court records state. In his ruling against UC on July 24, Alameda County Superior Court Judge James Richman noted that his order was “limited to the IRRs and the minutes and tapes [of particular meetings held by the UC Regents’ Committee on Investments and the Board of Regents].”
“We disclosed the information that Judge Richman said should be made available,” Mayer says.
The Mercury News and other plaintiffs will file a new public records act request for current IRRs, Olson says. If UC isn’t forthcoming, it’s possible that the plaintiffs will file another suit against it, he says.
There was an assumption in the press that if UC lost its appeal, it would make more than just its IRRs available. For example, the Univeristy of Texas Investment Management Co. made the following information available for each of its private equity investments: the name of the fund manager, the fund name, the vintage year of the fund, UTIMCO’s commitment, capital drawn down to date, capital return to UTIMCO, the general partner’s assessment of the current value of the investment, and the IRR. (See PE Week, Oct. 4, 2002.) CalPERS and the California State Teachers’ Retirement System (CalSTRS) have posted similar information about private equity holdings on their Web sites.
UC has no plans to release such data.
History Lesson
UC’s twisty legal journey began earlier this year when it was sued by the Mercury News, the Coalition of University Employees and Charles Schwartz, a retired UC professor. The trio essentially argued that the California Open Records Act compels a public institution like UC to release internal-rate-of-return data on its 94 private equity partnerships. Moreover, the group suggested that similar disclosures by other public pension systems hadn’t led to any fiscally negative consequences.
A July 24 ruling by Superior Court Judge James Richman agreed with the plaintiffs, and cited the fact that disclosure-friendly University of Michigan had been granted access into a new fund offered by respected Silicon Valley venture firm Sequoia Capital. That same day, Sequoia Capital opted to kick U Michigan out of the new vehicle, and asked the school to sell any other active Sequoia partnership stakes on the secondary market.
Such repercussions did not faze Richman, however, who dismissed a motion for reconsideration. On Sept. 5, UC filed an appeal and disclosed that it, too, had been booted from the new Sequoia fund and been asked to sell off existing stakes. The school essentially was saying that its bottom line would be damaged by complying with Richman’s ruling, and used the loss of prospective Sequoia-related returns as proof. It noted that it has received $508 million from Sequoia on an investment of about $110 million, a return of 460 percent. Overall, UC’s private equity investments of $650 million have resulted in a return of $2.2 billon to date, and the university worries that it won’t receive similarly high returns upon being forced to disclose confidential IRRs, according to court filings.
The California Court of Appeals, however, sided with Richman. UC then appealed to the California Supreme Court, but the court declined to hear its plea last Tuesday, putting the matter to rest – for now.
UC is the sixth major U.S. institution to release such data, following UTIMCO, CalPERS, CalSTRS, the University of Michigan and the Washington State Investment Board.
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