In a move likely to cause controversy among VC firms and lawmakers alike, the University of Texas Investment Management Company (UTIMCO) has announced that it will publish the financial performance results of the venture capital and private equity firms in which it has made investments.
UTIMCO, which has invested in a wide range of firms worldwide including Atlas Venture, Austin Ventures, Morgenthaler Ventures and CVC Capital Partners, unanimously approved the decision to publish earlier this month.
According to UTIMCO chief executive Bob Boldt, the move is necessary to maintain public confidence in the financial markets. “We’re a public university and effectively we invest public funds. There is therefore a need for transparency in our disclosures.”
The issue of disclosure has been a major cause for concern in the US during the last twelve months. Corporates including Enron, Tyco and WorldCom have all fallen victim to accountancy scandals in the past twelve months, damaging confidence in financial markets wordwide. For this reason Boldt believes the potential for discomfort among venture capital firms is justified. “We understand that firms have grown used to an environment in which confidentiality is the norm. However, we think it’s important to raise standards to a higher level.”
One of the objections raised by private equity and venture capital funds is that the data published can often give a distorted impression of a fund’s performance. Venture funds report ostensibly poor performance data at the beginning of their investment cycles. To counteract this criticism, UTIMCO intends to issue a disclaimer with the data explaining that the data can be misleading and should only be used by professional investors.
In 2001, CalPERS caused a stir among a number of its GPs when it published data charting the performance of its private equity investments from its website. The fund eventually backed down in response to criticism that the data was misrepresentative. Earlier this month, Italian technology fund of funds investor Cdb Web Tech issued data on its 53 fund investments that highlighted the high level of writedowns among technology funds.
UTIMCO has said that it will no longer invest in private equity funds that are not willing to disclose financial performance data. Existing investments will be asked to provide a variety of information including ROI for funds whose partnership agreements did not include non-disclosure clauses. For those funds which specified a non-disclosure agreement, UTIMCO will request a waiver from the general partnership. If this is rejected, UTIMCO will refer the issue to the Texas Attorney General's Office.