R.G. RATCLIFFE
Houston Chronicle Austin Bureau
March 24, 1999, Wednesday

AUSTIN - A Houston lawmaker said Tuesday that he will push for measures to increase public scrutiny of the private investments made by the University of Texas Investment Management Company.

"Here you have this entity that is operating with $1.7 billion of public money and we are shielded from knowing how well it is doing; who is benefiting and what, if any, conflicts might exist as it relates to the public's tax dollars," said state Rep. Sylvester Turner, D-Houston.

Turner was reacting to a Houston Chronicle story published Sunday that reported that $457 million of the $1.7 billion UTIMCO has invested privately had been placed in funds run by major Republican donors or associates of UTIMCO Chairman Tom Hicks.

The Chronicle reported that UTIMCO declined to disclose the names of the people who managed the investment funds. Two attorney general opinions said that even though UTIMCO functions as a government agency, it was exempt from releasing certain information that would publicly disclose private investment profits or losses.

Turner said he hopes to increase UTIMCO public disclosure by adding a requirement to the University of Texas System's funding in the state appropriations act.

Turner said UTIMCO, which was set up under a 1995 law, is part of a growing pattern of government and private-sector joint ventures.

"There's going to be more and more of a push for the public and private sectors to engage in cooperative ventures. I think that is good and we want to encourage that," Turner said. "But that does not mean we sacrifice the public's right to know about matters that directly concern the public's money."

UTIMCO manages almost $12 billion in Permanent University Fund and UT endowment investments. The management company invested $1.7 billion of that money privately.

Most of UTIMCO's investments are in securities. Private investments are high-risk funds that promise a high rate of return through investment schemes such as leveraged buyouts, venture capital or the restructuring of corporations.

"We need to know if they are making wise and prudent investments. If they are not, we should not find that out once they have lost the $1.7 billion, and then we're raising questions about what happened and how did we let it get to this point," Turner said.

"If they make money, there won't be a lot of questions. But what happens if somewhere down the road they come to us and say they've lost a significant portion of that $1.7 billion?"

Turner said potential conflicts of interests should be revealed in such investments. He said disclosing the names of the persons managing investment funds should not harm any confidential investment strategies.

"It's important to make sure they disclose in as much detail as possible where a conflict may exist or may arise and do it in some form that will alert the public and the state," Turner said.

"At the least, with the very minimum, provide us with sufficient information that we are not kept blind," Turner said. "I don't want someone turning over $ 1.7 billion, $2 billion or $3 billion to someone and then at that point I'm totally out of the loop."

UTIMCO President Tom Ricks said the UT Board of Regents oversees the private investments on behalf of the public. Ricks also said the funds are audited each year by an external auditor and that audit is posted on the Internet.

"In it we report the performance on all asset classes, including the private investments," Ricks said. "We also provide a supplemental report for the Permanent University Fund in which we list the asset value of every investment in the fund, including the private investments."

But the attorney general's office has said that UTIMCO does not have to disclose its cash flows from the individual investments. Cash flows and "internal rates of return" are used by accountants to determine whether an investment has made or lost money.

"We provide information on the portfolio on the whole as well as by the vintage year," Ricks said.

"But we do think we're being put at a competitive disadvantage if we're having to report the cash flow activity for individual partnerships where other institutional investors, corporate pension plans, other public plans are also invested and they are subject to confidentiality agreements much as we are," Ricks said.

Ricks said the university wants to make as much information public as possible. But he said private investment management funds need a level of secrecy so their competitors will not steal their investment strategy.

"This is an area where we are attempting to balance our need to remain competitive in the private investment marketplace with the need for accountability and for information by the public," Ricks said.