San Jose Mercury News

10/1/03

UC APPEAL REJECTED BY COURT
INVESTMENT DATA MUST BE DISCLOSED

By Matt Marshall

The California Supreme Court rejected the University of California's final bid Tuesday to avoid releasing financial performance results of private investments it makes on behalf of its thousands of retirees.

The decision is significant because it confirms an emerging standard on disclosing such information for public institutions in California -- and elsewhere in the nation.

The nation's public institutions manage about $200 billion in investments in private equity , which includes venture capital and buyout firms.

The state's Supreme Court on Tuesday threw out the university's last appeal of a lower court's July ruling. Public disclosure laws, wrote Judge James Richman, require the release of the performance data. UC manages $950 million in private equity investments , according to its Web site. Richman also ruled that minutes of UC Regents investment meetings should be disclosed.

''This is clearly a great victory for public disclosure, and our ability to monitor what our employer is doing with our retirement funds,'' said Claudia Horning, president of the 18,000-member Coalition of Union Employees (CUE).

The Mercury News and CUE sued the university in April. It is the latest California public institution to be challenged by the Mercury News and others to reveal their results.

Right to know

During the Internet bubble, many public institutions, including UC, made big investments in private equity firms. Many of those investments have since turned sour with the downturn.

The Mercury News-CUE suit argued that university retirees and taxpayers -- who contribute to the university's budget -- have rights to such information. Public scrutiny, the suit argued, helps avoid investments from being made based on personal connections instead of merit alone.

The university countered that the data includes trade secrets, and that its release could encourage top venture firms to exclude UC from future investment opportunities. After the initial ruling, Sequoia Capital notified UC that it would no longer be able to invest in Sequoia -- possibly costing UC future profits.

Another problem is that measuring venture capital returns is tricky, because most funds have a life of 10 years, and only become profitable after four or five years.

''The university is disappointed that the court chose not to take up this case,'' said Trey Davis, a UC spokesman. He said damage caused by disclosure will outweigh any public benefit.

Other funds

Last year, the Mercury News sued the California Public Employees' Retirement System, the nation's largest public pension fund, after being rebuffed onrequests for similar information. Under a settlement, CalPERS now releases its performance data online. CalSTRS, the California State Teachers' Retirement System, and the San Francisco Employees Retirement System also began disclosing data. The UC had been one of the state's only holdouts.

The state's other resister was the Los Angeles County Employees Retirement Association, which manages $1.25 billion in private equity for public employees. However, Chris Wagner, who oversees the Los Angeles fund's private portfolio, said Tuesday that the UC, CalPERS and other decisions, have made his stance moot. The performance data of most venture firms his fund has invested in have been released by other institutions. So Wagner is ready to release similar information, he said.

There are still a few holdouts outside of California, but their ranks are thinning: ''I think there's a resigned consensus,'' said Jesse Reyes, vice president of Venture Economics, a venture capital research group.