Less than three weeks after a newspaper successfully pressed the University of Texas to release private equity return data, a Silicon Valley newspaper sued the $100 billion California Public Employees’ Retirement System (CalPERS) for refusing to release detailed private equity investment records.
(For an in-depth analysis of the University of Texas’ decision, see Special Report: Disclosure, page 20).
The complaint was filed in San Francisco Superior Court as a writ of mandate under the California Public Records Act, and a first hearing is tentatively scheduled for November 6. “We are strong advocates for citizens and transparency in government,” says David Yarnold, executive editor and senior vice president of the San Jose Mercury News. “This particular issue seems so egregious that somebody has to take a stand.”
The issue is whether or not public institutions like CalPERS should be required to report internal rates of return (IRRs) for each of their private equity fund investments. Transparency advocates like Yarnold argue that the public has a right to know exactly how its money is being invested, while opponents insist that such disclosure will ultimately harm pensioners by turning CalPERS into a private equity pariah.
On Oct. 4, the University of Texas Investment Management Co. (UTIMCO) ended a yearlong battle with the Houston Chronicle by finally agreeing to turn over its fund-by-fund performance data. While the particulars of the UTIMCO and CalPERS situations are slightly different, lawyers for the Mercury News cited UTIMCO in court papers: “UTIMCO’s decision puts the lie to CalPERS’ claim that venture firms would reject CalPERS as an investor if it released IRR results.” But it remains to be seen whether VCs will shun UTIMCO in future funds.
“It’s highly speculative for CalPERS or anyone else to say people are not going to want to do business with them if they release this information,” says Karl Olsen, an attorney representing the Mercury News. Olsen adds: “Even if it were true that [CalPERS] might be denied access to some funds as a result of having to comply with the Public Records Act, I’d say it would be the cost of being a public agency.”
Some worry that the suit could lead to requests for public pension funds to reveal valuations on specific portfolio companies. Olsen says that the Mercury News lawsuit is not asking for such data, although the newspaper’s Yarnold says such a request was not inconceivable. “When private companies take on public investments, they also take on certain responsibilities.”
Neither CalPERS nor Grove Street Advisors, which consults on a significant percentage of CalPERS’ venture capital investments, returned calls requesting comment.
The Mercury News suit represents the second major transparency mess for CalPERS. The original incident occurred last year when CalPERS posted and then pulled internal rates of return for most of the venture capital and buyouts funds in its portfolio.