UTIMCO Release Raises Questions and Eyebrows

Earlier this month, the University of Texas Investment Management Co. (UTIMCO) released fund-by-fund performance data for its private equity portfolio. The disclosure was made in response to several requests under the Texas Freedom of Information Act (FOIA) and could represent the first private market domino to fall as the post-Enron public clamors for greater fiscal transparency.

The UTIMCO data includes 124 active private equity funds, 116 of which had included confidentiality language in their limited partnership agreements to prevent such a dissemination of information. Thirty-two of those partnerships signed waivers releasing UTIMCO from liability, while the rest sat idly by without registering any legal challenges with the Texas Attorney General’s office. This is in contrast to a situation brewing in Massachusetts, where three venture firms are preparing to sue the state pension fund so as to block similar fund performance disclosures.

“There were a lot of on the phone’ objections and it’s safe to say that the partners, almost without exception, were not happy,” says Bob Boldt, CEO and chief investment officer of UTIMCO. “They were not even objecting to the public right to have the information, but rather the interpretation of that information. Some of the returns for the young venture firms look very, very bad… because these are long-term investments.”

Of the 38 funds in which UTIMCO has invested since the beginning of 2000, just four have positive rates of return (IRR) as of August 31. The biggest winner in that group is Warburg Pincus Private Equity VIII LP (2001), which is listed with an IRR of 14.69%, although the IRR includes unrealized write-ups instead of pure cash-on-cash returns. Austin Ventures, whose office windows look out onto the University of Texas campus, is at the other end of the spectrum with eighth fund (2001) written down to

-53.99%, although it is unclear if this figure does or doesn’t include management fees that were rescinded when Austin Ventures reduced the size of Fund VIII earlier this year (See PE Week 6/11). For context, the average venture capital fund raised in 2001 currently has an IRR of -19.21%, according to pooled average vintage year benchmarks from Venture Economics (publisher of PE Week). In the even larger picture, Austin Ventures has made its neighbor proud by returning an aggregate IRR of 45.57% on the five funds in which UTIMCO has been a limited partner.

Overall, UTIMCO has outperformed preliminary data from the Venture Economics Private Equity Performance Index (PEPI) for one-year returns, at -15.41% for UTIMCO and -16.6% from the PEPI data. Going back further, however, UTIMCO has not done nearly so well. The PEPI average three-year return for private equity funds is 5.3%, while UTIMCO comes in at 1.98%. This trend holds true for 5-year returns with 10.8% PEPI to 6.9% UTIMCO, and 10-year returns showing 16.1% PEPI and 15.05% UTIMCO. One explanation for this discrepancy is that UTIMCO spent most of the 1990’s focused on buyout funds, which have much lower 3, 5 and 10-year returns than do venture funds. For a complete breakdown of the PEPI data, please see the chart in Monday’s print edition.

Some of the biggest gainers in the active UTIMCO portfolio include a pair of venture funds raised in 1995: Information Technology Ventures LP (1995) and Austin Ventures IV LP. The pooled average vintage year benchmark for 1995 VC funds is 57.4%, but ITV and Austin Ventures vehicles list IRRs of 90.11% and 73.25%, respectively. The best-performing leveraged buyouts fund for UTIMCO is Doughty Hanson & Co. II, a 1996 fund armed with a 50.21% IRR. The pooled average vintage year benchmark for 1996 LBO vehicles is just 6.6%.

The most disappointing pre-2000 venture fund for UTIMCO was Crescendo Ventures III (1999) with an IRR of -24.62%, which compares to a -17.3% pooled average vintage year benchmark. Baker Communications also struggled badly, with its 1998 fund listed at -16.26, even though the average 1998 venture fund IRR is 23.2%. The worst performing pre-2000 leveraged buyout fund was Willis Stein & Partners II LP with a -23.36% IRR. The pooled average vintage year benchmark for 1998 LBO funds like Willis Stein II was just -2%. Overall, the three Crescendo funds in the UTIMCO portfolio have an aggregate IRR of -9.35%, two Baker Capital vehicles stand at -22.38% and two Willis Stein funds are listed at -10.42%.

VC Reaction

Most general partnerships contacted by PE Week about this story declined to comment, but those we did reach expressed concern about how much information UTIMCO and others will ultimately disclose.

“I’m not so much concerned about the release of fund performance numbers, but more that it could be the beginning of a slippery slope,” says David Parker, a San Diego-based general partner with Ampersand Ventures, which has included UTIMCO as an LP on three separate funds. “I think a lot of the push-back would come if LPs began releasing information on the individual portfolio companies.”

UTIMCO officers had originally says that the pension fund would not be in the business of providing such information, although they seemed to hedge a bit when asked the question during a conference call with reporters following the data release. During a follow-up conversation with PE Week, however, UTIMCO’s Boldt reiterated that he would likely stand in the way of any such FOIA request, although he has yet to receive one.

“I believe in disclosure as someone managing public funds, but there has to be a sensibility overlay if it is harmful to the public interest,” he explained. “There is a level where it becomes harmful, and I hope people don’t go blindly toward that point.”

For more data and a look into some of the affected funds, check out Monday’s print edition of PE Week.

Contact Dan Primack