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Texas’ biggest endowment fund manager did something nearly unprecedented in the United States on Friday: It revealed publicly the usually confidential financial performance of several major private equity and venture firms, including Kohlberg Kravis Roberts & Co. and Atlas Venture, even amid threats of lawsuits to halt the plan. The University of Texas Investment Management Co., which has $1.3 billion in private equity and venture capital assets, didn’t do so without years of public pressure. Then on Sept. 18, Utimco’s board voted to open the books, but confidentiality clauses prevented it from doing so until a week later when Texas Attorney General John Cornyn ruled the information was public and must be released by Friday. After threats of lawsuits, it appears no one has done so, though the controversy between institutional investors and their general partners is not likely to die down quickly. “We’re not ecstatic, but in the current environment where there’s a particular lack of trust in corporate executives and businesspeople as a whole, it’s not surprising that people are going to request greater transparency from public entities,” said Bob Fleming, founding partner of Prism Venture Partners of Westwood, Mass., one of Utimco’s portfolio funds. Citing a need for greater public disclosure as a public entity, the Utimco, which manages the University of Texas and Texas A&M University endowment funds and others, on Friday released previously undisclosed investment information in full, including coveted internal rates of return. “Given the environment we’re in now, it’s the right thing to do for public funds,” said Bob Boldt, Utimco president. Boldt emphasized he is “not trying to lead some sort of great crusade” against the private equity and venture capital industry, since “it’s not an industry that needs to be cleaned up or anything, like the accounting profession.” Rarely do institutional investors in private equity disclose returns because their general partners have historically prohibited them from doing so, citing confidentiality agreements. The only other exception in the United States was the California Public Employees’ Retirement System, which last year released performance numbers on its Web site, then withdrew them after complaints by portfolio fund managers. Institutional investors such as Utimco have been putting poorly performing portfolio funds under tighter scrutiny. However, some industry executives warn that putting added pressure on some of the top-tier firms could backfire if Utimco is blocked from investing in the best performing funds in the future. “The public funds should be concerned about disclosing information on some of the better funds if it either hurts the portfolio or restricts their access,” said Jim Treanor, portfolio manager at the Florida State Board of Administration. “Some venture funds will just refuse to deal with certain public funds.” As of press time, Boldt said he has not received notification of any legal action, though they are still possible. But he said he hopes Utimco “can work with the general partners to convince them that it is at least to some degree in their best interest to allow us to disclose certain information that the public really has the right to know.” Utimco, with $13.2 billion under management, has invested in more than 100 funds and has a target of $1.7 billion for buyout, special equity, mezzanine and venture capital funds. Among its portfolio holdings are Kohlberg Kravis Roberts & Co., Texas Growth Fund, Morgenthaler Ventures, Ampersand Ventures, Crescendo Ventures and Atlas Ventures. Triggering recent developments was a long-running request from the Houston Chronicle newspaper for Utimco officials to release data. The Chronicle reported in 1999 that investments had been made with certain portfolio fund managers linked to University of Texas officials and then-Gov. George W. Bush. Boldt, appointed president in April, said, “I don’t really have an ax to grind on this issue, but I looked at the claims back in 1999 and I’ll tell you there’s absolutely no evidence of any kind of self-interested transactions.” “I think what you’ll see in the information is that some funds are great, some aren’t, but the performance of the private equity portfolio in general has been excellent,” he added. Before the Texas attorney general’s ruling, Utimco was contacting general partners to seek their consent to waive the clause. Boldt said, “About 70 percent of the partners we talked to verbally said they understood and were okay with the disclosure.” When asked for written consent, however, few actually signed. “Frankly, we don’t have many signed waivers and don’t expect many back at this point,” Boldt said. Fleming agreed that no one is happy about the disclosure but that he understands Utimco’s situation. Rather than fight it, “We — like just about every one of Utimco’s LPs — would let them release the information, as long as it doesn’t get completely out of hand.” Copyright �2002 TDD, LLC. All rights reserved.

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