Secrecy in investing the public's money is not good for Texas

Austin American-Statesman
Thursday, September 09, 2004

The venture capital clique is giving an ultimatum to public investment funds: Keep the people in the dark about the investment of their money or we won't let you play anymore.

Since every last dollar of those investments is public money and pays for things such as the University of Texas and teacher retirements, there must be transparency. There is simply no persuasive case for confidentiality when it comes to the investment of money earmarked for Texas.

Yet, that's what the venture capital funds insist upon. If they want to close their door to public money, as Austin Ventures has threatened to do, so be it. Public interest in those investments heavily outweighs the rate of return the venture capitalists tout. And it's a fact of investment life that higher return means higher risk, so although the large funds need investment flexibility, less risky investing might be healthier for Texas in the long run.

Attorney General Greg Abbott has ruled that information about the investment of public money must, in most cases, be disclosed. Abbott ruled recently that information the Teacher Retirement System sought to keep confidential would not cause injury if released, which is the state test for keeping public information confidential.

Abbott said the funds can't rely on a general argument that disclosure is harmful, but must detail specific, factual instances of injury. In most cases, the public investment funds cite only hypothetical cases in which release of information might hurt business.

The University of Texas Investment Management Co., which manages $16 billion in public endowments, the $86 billion Teacher Retirement System and the smaller Texas Growth Fund are caving to the venture capitalists. TRS and the Growth Fund, which the state created to invest public money in private companies, have sued Abbott in an attempt to maintain investment secrecy.

With so much public money invested, there are too many hazards for secrecy to prevail. The Texas Growth Fund has been harshly criticized for poor investments and mismanagement and UTIMCO has a history of criticism of its investments. The potential for mismanagement and sweetheart deals is too great to keep the public in the dark about their investments. Texans not only should know, but need to know, what's happening with their money.

Fights over openness in public fund investing are going on all over the country. The California Public Employees' Retirement System (Calpers) pension fund is fighting to keep secret the fees it pays the private equity firms that manage its investments. Those who depend on the fund for their retirement don't know if Calpers is doing a good job or not.

A Calpers official, quoted in the Wall Street Journal, said too much transparency is detrimental to the taxpayers' interests because it could result in venture capital firms refusing public fund investments, which would reduce returns.

But if the venture capitalists blackball all public funds, that will mean hundreds of billions of dollars for other, safer investments.

Rate of return cannot be the only measure for investing public money.

There must be security, fairness, accountability, openness and transparency — not secrecy. A 39 percent return looks great until the bubble bursts and millions of dollars that belong to the people of Texas are gone forever.