30% of managers balk at opening records to public

By: R.G. RATCLIFFE
Houston Chronicle Austin Bureau
September 22, 2002, Sunday

AUSTIN - About 30 percent of the managers for the Permanent University Fund's high-risk private equities portfolio are balking at publicly releasing their investment returns, the University of Texas Board of Regents learned Saturday.

The regents unanimously approved a resolution backing the University of Texas Investment Management Co.'s decision last Wednesday to make public the returns for the secretive managers of the PUF's $1.7 billion private equities portfolio. The portfolio has lost 15.96 percent of its value in the past year.

"We're now opening ourselves more than any public fund in the country and probably in the world," said Board of Regents Chairman Charles Miller of Houston.

UTIMCO is a government-owned corporation that manages the state's higher education trust funds from the University of Texas and Texas A&M University. Private equities are limited partnerships that invest directly in a business or businesses rather than trading in stock.

UTIMCO and the UT regents voted to make the investment managers' returns public in response to a report by the Houston Chronicle that the records had been sealed despite a 1999 promise to make them public. The Chronicle that year reported almost a third of the fund's $1.7 billion in investments between 1995 and 1998 had gone to personally or politically connected investment managers.

Bob Boldt, president of UTIMCO, told the regents Saturday that his staff made it a top priority last week to contact the 74 general partners who run the private equity investment funds to see if they will waive the confidentiality clauses in their contracts.

Boldt said about 70 percent of the fund managers have agreed so far and their returns should be ready for release sometime this week. But he said the remaining managers are opposing release of the information and may fight it before Texas Attorney General John Cornyn.

The state public information act allows a business that works for the state to claim its documents are exempt from public disclosure because it would put the company at a competitive disadvantage.

UT Chancellor Mark Yudof said those managers who fight disclosure will have their case referred to the attorney general, "but with our strong view that the attorney general ought to allow the disclosure of those matters."

Yudof said he hopes the investment managers "will see the light because of the strong pro-disclosure position taken by the Board of Regents and the UTIMCO board (of directors)."

Boldt said there are some legitimate reasons why the partnerships would not want their returns disclosed.

"There are good reasons why those partners don't want those numbers released, and its not just that we're in a down market and those numbers might not look good," Boldt said.

He said one problem is the private equity managers often calculate their rates of return differently. He said private equity does not have an industry standard for calculating returns. The other problem is some managers may use "less conservative" means of valuing in investment to create greater short-term returns.

But Regent Woody Hunt said the University of Texas can lead the nation in setting a standard.

"Our position on disclosure will add pressure on the industry to standardize," Hunt said. "We're at the tip-over point to force the standardization of reporting. There should not be this kind of one does it different from another."

The California Public Employees Retirement System already is working with the Institutional Limited Partners Association to create standardized reporting for the private equity industry.

Miller said the University of Texas should be among the leaders in pushing the private equity industry to change its attitude toward disclosure.

"We think there is a cutting-edge issue with us where we think we can lead the industry and let it be known that we can affect change," Miller said. "Public funds are probably going to gravitate to this position."