Disclose public investments, Abbott urges

'No proof secrecy will endure good investments,' attorney general says

By Robert Elder Jr.
Austin American-Statesman
Monday, October 4, 2004

Attorney General Greg Abbott said it's critically important for Texas to win a first-of-its-kind legal battle to force disclosure of sensitive information about the private companies in which the state invests.

At a Freedom of Information Foundation of Texas conference Friday, Abbott said virtually all information about investments that receive public money should be disclosed.

In a July 26 ruling, the attorney general said, that information should be released about companies in the portfolios of private equity funds that receive money from state pension funds and endowments. Texas' major funds have nearly $10 billion invested in such funds.

Private equity firms oppose the release of information about specific company investments, warning that such disclosure will destroy their ability to compete.

Some firms have threatened to stop accepting investments from states that release such information, which would shut the states out of potentially lucrative opportunities.

Abbott scoffed at that view. "There's no proof that secrecy will ensure good investments," he said.

"In the aftermath of vast corporate scandals, it is imperative that we balance" the confidentiality of private investments with "the public's right to know how (firms) are managing the public's dollars," he said.

But Abbott made clear that he favors broad disclosure.

When asked about the release of information on specific company investments in a private equity firm's portfolio, he borrowed a federal education act phrase from President Bush: "We will leave no investment behind."

The fight for disclosure, Abbott said, extends far beyond a pending lawsuit on the issue. The Texas Growth Fund, a state-created private equity firm, and the Teacher Retirement System of Texas sued Abbott to overturn his July ruling.

Currently, state entities release only quarterly returns of private equity funds to the public.

Abbott rejected the view that the rates of return for state funds would be depressed if they were shut out of private equity firms.

With billions of dollars to invest, Abbott said, "money management organizations around the globe would be glad to manage this money" and provide good returns.

That's not the case, said Bob Boldt, the CEO of the University of Texas Investment Management Co., which manages higher education endowments. Large institutional investors such as UTIMCO, he said, invest only in top-performing private equity firms.

And those firms, Boldt said, "have their pick" of investors. "There's just not an endless supply of money managers that are top quartile."

Losing access to top-tier firms would cost the state money, UTIMCO contends.

The annual returns of lower-ranked firms are between 1 percent and 3 percent less, and decline from there. That difference could result in hundreds of millions of dollars less a year for state funds.