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| 2002 News and Press Releases |
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HEADLINE ARCHIVED:
Transparency Debates Continues; Third Parties Weigh In On
Bout
By: Michael V. Copeland
Private Equity Week. November 4, 2002
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EXCERPT: The pressure for public agencies to release private equity performance figures has spread from sea to shining sea - and then some. First Texas, then Massachusetts, California and now Illinois and Alaska have all been subject to recent Freedom Of Information Act (FOIA) requests to force state pension funds to release data on their private equity investments. The 8requests vary from return information to entire partnership agreements and details on the portfolio companies the funds have invested in. Thus far, Texas has been the only state to comply with the current requests. The University of Texas Investment Management Co. (UTIMCO) in September released fund-by-fund performance of its venture capital investments (See PE Week 10/13 pg. 1). Whether others follow suit, and whether states can be forced to release return information and beyond will be decided in court. The outcome of any legal case is far from certain, but what is certain is that more of these requests will be made. The essence of any legal battle will be whether a particular state's FOIA law trumps the non-disclosure agreements signed by the public pensions when they invested in VC funds. Most state FOIA laws mirror the federal FOIA in the way they are constructed, says Richard Moorhouse, government contracts partner with Reed Smith. At its most basic, FOIA was constructed to provide a legal avenue for the release of public documents. But that doesn't mean everything within those public documents will necessarily be made public. FOIA has a series of exemptions, the most critical of which for VCs is an exemption that allows them to not disclose any information they deem to be proprietary - that is, the release of the information will harm the firm because it benefits competitors or that it will reveal a trade secret. What court cases will answer is what is proprietary and what is public, and the answers will vary from state to state…. "If it is public money and it is invested in private equity the requestor could have an argument that at least some of that information should be disclosed," says Moorhouse "For crying out loud, it's public money and public pensions - there should be some transparency."…If they release data, public pension funds need to consider the very real threat that they will be frozen out of top-tier VCs funds at a minimum, says Stanford Law and Business Professor Joe Grundfest. "It's not just venture capital," he says. "It's the ability of any of these state institutions to enter into a legally binding contract that they will not disclose information on any private equity investment. That means LBOs, real estate, timber and oil and gas. "It may well be that they will now be carved out of all of that," Grundfest adds.
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