OAKLAND, Calif. - The University of California, Oakland, is being sued by the Coalition of University Employees, a union representing 18,000 clerical employees, and the San Jose Mercury News, a newspaper, to force the university to disclose how each fund in its private equity portfolio has performed.
"We denied the request (for the information) on the grounds that the information is a trade secret of the companies with which we do business, and releasing it would be harmful to us," said Trey Davis, spokesman for the university system, with $48 billion in pension and endowment assets.
"It would limit our ability to participate in top-tier private equity funds."
The issue of disclosure continues to make waves in the private equity industry, even though the $131 billion California Public Employees' Retirement Fund, Sacramento, settled its lawsuit with the San Jose Mercury News and agreed to disclose the internal rate of return of each of the 340 private equity and venture capital funds in its private equity portfolio. It is preparing to release the information on an enhanced website within a few weeks.
The suit against the University of California, filed in Alameda County Superior Court in Oakland earlier this month, states: "Assurances of confidentiality by UC to private companies that the data would remain private was not sufficient to convert what was a public record into a private record."
The suit requests records of closed investment meetings, particularly those held in 2000, when a new asset allocation plan was adopted, and in 2002, when a multiple manager equity investment strategy was approved.
Said Chris Patti, university general counsel: "Under California open meeting law, some meetings can be closed if they relate to the purchase or sale of investments. Those meetings mentioned in the suit concerned strategy changes which would result in purchases and sales which would, in turn, have an effect on the stock market, and that was the reason they wanted to keep the sessions closed."
Meanwhile, many states are trying to amend laws to avoid having to reveal information about the portfolio companies and their performance in their venture funds, noted Thomas Beaudoin, partner at Testa, Hurwitz & Thibeault LLP, a Boston-based law firm with a private equity practice.
Illinois is taking the lead. On April 8, the state Senate passed a bill exempting private equity portfolio information from the definition of public record. The bill moved to the House, where it is expected to pass quickly, said Malcolm Nicholls, a senior associate at Testa Hurwitz. State Rep. Barbara Flynn Currie said she expects the bill to go to committee in two weeks.
Testa Hurwitz's Mr. Nicholls pointed out the exemption would not apply to the "financial performance of venture funds; it just exempts individual portfolio company information."
The disclosure issue was also a hot topic at the American Bar Association's spring meeting, held in Los Angeles earlier this month. Said one participant, who asked to remain anonymous: "While the first big fights have been over fund level performance, the next front in the war could be portfolio company information."
No company performance
So far, however, none of the tax-exempt funds disclosing fund performance is including information on individual portfolio company performance.
But Testa's Mr. Beaudoin said two labor unions sued two states, seeking specific information about the portfolio companies because they want to determine whether their pension funds are investing in union-friendly companies.
Mr. Beaudoin wouldn't name the participants in the suits because of his firm's involvement.
In a related development, the $13 billion University of Texas Investment Management Co., Austin, began posting private equity performance data on its website April 10. The move followed a ruling from Attorney General Greg Abbott that UTIMCO is required to make the information public, even though 36 of its 67 general partners had not signed waivers agreeing to release the information.
Since releasing the information, none of the general partners has complained, said UTIMCO spokesman Greg Lee.
"No one has challenged the release of the information, and our business hasn't been impacted at all," he said.
When disclosure first became an issue last fall, general partners at several venture cap firms voiced concern and threatened to bar limited partners that released return information from investing in future funds.