Texas bill would force state agencies to disclose its private equity returns

AUSTIN, Texas — A bill filed Dec. 14 in the Texas Legislature would require state agencies to divulge returns of any private equity fund in which they are invested, as well as the year the fund was created and the amount invested.

"This bill balances the public's right to know certain investment information while protecting company trade secrets," according to a news release from state Rep. Dan Gattis, who proposed the legislation with state Sen. Robert Duncan. The bill will be up for discussion when the Legislature convenes in mid-January.

Organizations affected would include the $85 billion Teacher Retirement System of Texas, Austin, and the University of Texas Investment Management Co., which manages the $16 billion University of Texas endowment, Austin. New legislation also calls for board members to disclose possible conflicts of interest regarding investments.

Texas Attorney General Greg Abbott is supporting the bill. He is being sued by TRS over his ruling earlier this year that the fund release information about its investments. Neither Tom Kelley, a spokesperson in Mr. Abbott's office, nor Howard Goldman, a spokesperson for TRS, would comment on the lawsuit.

An October statement on the UTIMCO website said Mr. Abbott's disclosure policy could have "significantly negative effects on the economic development and competitiveness in Texas, and could cost taxpayers billions of dollars in higher taxes, fees and tuition."

UTIMCO spokesman Greg Lee could not be reached for comment.

NEW YORK — Goldman Sachs Asset Management reported its assets under management increased to $452 billion as of Nov. 26, the end of the firm's fiscal year, compared with $426 billion in the third quarter, confirmed Andrea Raphael, spokeswoman. The increase was attributed to $17 billion in market appreciation, primarily in equities, along with net inflows of $9 billion in fixed-income and alternative investment and equity assets.

Separately, Morgan Stanley reported $222 billion in institutional assets under management as of Nov. 30, up from $200 billion at the end of the third quarter and $164 billion as of Nov. 30, 2003, confirmed Chad Peterson, spokesman. Net inflows for the fourth quarter were $1.2 billion, compared with net outflows of $200 million in the third quarter, according to the company's fourth-quarter earnings report.

WASHINGTON — The SEC on Dec. 16 settled civil fraud charges against Knight Securities, once one of the largest Nasdaq market-makers. Without admitting or denying charges of failing to provide best execution to its customers, the broker-dealer, now known as Knight Equity Markets, agreed to pay more than $41 million in repayment of illegal profits, civil penalties and pre-judgment interest. The company also agreed to pay $12.5 million to NASD to settle a similar suit. Additionally, the company also agreed not to commit any future violations of securities laws and to retain an outside compliance consultant to review its policies and procedures regarding best execution.

BURBANK, Calif. — Walt Disney Co. plans to contribute $148 million in cash to its pension plans in fiscal 2005, down from $155 million in fiscal 2004, according to an SEC filing. The company's pension plans, with a combined $3.1 billion in assets, were underfunded by $630 million as of June 30. The plans were underfunded by $1.1 billion a year earlier, according to the annual report. Company officials attributed the underfunding to lower-than-expected returns on plan assets in fiscal 2002 and 2003 and an increase in the discount rate over the last two years, to 6.3% for 2004 from 5.85% in 2003. The company's long-term expected rate of return on plan assets was 7.5% for both 2004 and 2003, the filing said.

DES MOINES, Iowa — Principal Financial Group agreed to acquire ABN AMRO Trust Services, the U.S.-based pension and retirement business of ABN AMRO, according to Susan Houser, a spokeswoman for Principal. The deal is expected to close on Dec. 31; terms were not disclosed.

ABN AMRO Trust Services provides defined contribution record-keeping and investment services in the United States to about 300 401(k) plans with $3.6 billion in assets. Principal currently has $58 billion in defined contribution assets under management.

OLYMPIA, Wash. — The Washington State Investment Board adopted a new policy and guidelines to directly vote proxies for the $17.8 billion domestic equity portfolio beginning in 2005, said spokeswoman Liz Mendizabal. Proxies had been voted indirectly through Barclays Global Investors, which manages the fund's domestic equities, based on the Council of Institutional Investors corporate governance policies. Officials for the $57 billion fund recently contracted with Glass Lewis and the Investor Responsibility Research Center to assist in voting.

Two corporate pension plans are considering investments in hedge funds or funds of funds.

Officials at FirstEnergy Corp., Akron, Ohio, are said to be considering the first-time addition of hedge funds or fund of funds as investment options for the company's $3.5 billion pension plan.

One money manager who asked not to be identified, citing conversations with plan officials, said the company is looking at the idea to beef up returns and ease underfunding concerns. At the end of last year, the plan was underfunded by $847 million, or about 25.5%, according to its annual report.

Don Perrine, director, investment management, said there are no specific plans to search for hedge funds. "We're always looking at new strategies. It's the course of normal business to be aware of what's available out there," he added.

Separately, in Toledo, Dana Corp. officials are examining pure alpha strategies such as long-short hedge funds, according to sources familiar with the situation. One source who has spoken about the matter with Ralph J. Lipford, Dana's vice president of investment management, said the company might invest a portion of an upcoming contribution in a hedge fund of funds for its $2.3 billion pension plan.

TACOMA, Wash. — Investment managers surveyed by Russell Investment Group believe corporate profits and interest rates will lift the market higher in 2005. Russell's quarterly investment manager outlook poll also found that 60% expect U.S. large-cap growth stocks to benefit in this environment. About 58% were bullish on health-care stocks, 57% liked developed markets equities, and 47% favored emerging markets. Bearish sentiment toward bonds "intensified significantly," with 74% of managers negative on U.S. Treasuries, an increase of 10 percentage points from last quarter.

"Large-cap growth is selling at historically low levels, particularly relative to value," said Randy Lert, Russell's chief portfolio strategist. Still, manager views toward large caps are contrary to what is taking place in the market this year. "They like growth better than value and, basically, value has done better."

Russell surveyed 109 U.S. investment firms, managing an average of $56.6 billion each, from Nov. 18 to Nov. 30.

LONDON — The Real Return Holding Co. will take a 25% stake in Avebury Asset Management for an undisclosed amount.

Real Return is the parent of Veritas Asset Management. As part of the deal, Avebury will manage global bonds and currencies for Veritas' multiasset mandates run for European high-net-worth clients and institutions, said Avebury founder and CEO Michael Daley.

Avebury, a currency and global fixed-income specialist with a U.S. client base, has assets under management of $140 million. The firm was launched in 2000. Veritas has £425 million ($821.87 million) in assets under management.

TORONTO — Franklin Templeton Investments, a Canadian subsidiary of Franklin Resources, received a letter from the Ontario Securities Commission warning the firm that it is under review for market timing in certain funds it managed between February 1999 and February 2003, according to a statement from the company.

Company officials are reviewing the letter and will cooperate to address the concerns. Lisa Gallegos, Franklin Resources spokeswoman, said the company would not comment further.

On Dec. 13, Franklin Resources subsidiaries Franklin Advisors and Franklin Templeton Distributors on agreed to pay $10 million each in penalties to settle SEC charges that they used fund assets to pay brokerage firms for recommending Franklin Templeton mutual funds.

BATON ROUGE, La. — Louisiana Municipal Police Employees' Retirement System is not in compliance with its investment policy, which does not permit investments in undeveloped land, according to a letter to the board of trustees from independent auditor Duplantier Hrappmann Hogan & Maher. At issue is the $1.2 billion retirement system's $16 million investment in a golf course project in Texas, in addition to a credit line of up to $30 million for the project, said Randy P. Zinna, an attorney representing the system.

The auditor recommended that the board review the investment policy and amend it where necessary. It also advised the board to review its development contract with Olde Oaks Golf Course to determine if it "is cost effective and a good business arrangement." The retirement system, which has $10.8 million invested in Olde Oaks and $4.2 million invested in the Golf Club at Stonebridge, lost more than $500,000 total on the investments for the year ended June 30, according to financial statements.

Kris Wartelle, spokeswoman at the office of Louisiana Attorney General Charles C. Foti Jr., said the office also did an independent audit of the retirement system that it has not yet released. She said the results were "along the same lines" as the other audit.