UTIMCO releases less info in report

Company highlights long-term return rates, but not short

By Aaron Dubrow
The Daily Texan
November 24, 2003

The UT Investment Management Company has changed the way it reports the performance of its private-equity investments to more accurately reflect the long-term value of its holdings.

UTIMCO manages about $14.7 billion for the UT Board of Regents, out of which an estimated $1.2 billion, or 8 percent, are private-equity holdings - investments in venture capital or non-market companies.

Until last year, UTIMCO did not disclose information about these investments. However, two September 2002 attorney general opinions said the performance of UTIMCO's holdings was public information, and the company was asked to release the data.

In the year since the ruling, UTIMCO has released information about its private-equity holdings both in terms of time-based, annualized returns - how the investments had done over 1-, 3-, 5- and 10-year intervals - as well as the total internal rates of return, or how the investments have done since their inception 20 years ago.

With the recent changes, UTIMCO will no longer report the short-term, annualized returns.

"When you're looking at venture capital returns, the internal rate of return is the industry standard and the most appropriate measurement," said Greg Lee, spokesman for UTIMCO.

Because of the volatile nature of venture-capital investments, many in the industry have fought against disclosing short-term results, which they claim distort the value of some holdings.

"It may make sense to do exactly what they're doing," said Sheridan Titman, UT finance professor. "They may not want to give a misleading sense that they actually know those returns."

However, some critics worry the change may just be a way to skirt the attorney general's rulings and provide less than full disclosure.

"It seems like UTIMCO is trying to mask their short-term losses," said Nick Schwellenbach, a member of UT Watch, a campus watchdog group. "Since the tech bubble burst, venture capital is not very willing to disclose information on how its investments are doing. It's like they're embarrassed with their investments."

Last week, UTIMCO released performance data for the quarter ending Aug. 31 that did not include time-based information. The company pegged the internal rates of return for their two portfolios at 10.47 percent and 8.55 percent over the last 20 years.

If the money had been invested in Standard & Poor's 500 Index, a common benchmark, it would have earned only 6.35 percent and 7.76 percent, Lee said.

Without annualized performance data, however, it's difficult to gauge how the investments have done lately, as public stock-markets have revived while private equity has remained sluggish.

"With private-equity funds, you need about six or seven years to fully recognize the return on your investments," said a representative of CalPerss, the California investment group that is the nation's largest public asset management company. "If you're arguing that the public should see the performance of a fund that's only a year old, it's likely to be deceiving."

But to critics arguing for greater public scrutiny, less information means less transparency.

"This is public money being used," said Schwellenbach. "They should be educating the public instead of hiding behind the internal rate of return."

Lee pointed out, however, that time-weighted data is available to the public should they request it. It's simply not highlighted in their reports.

"There's nothing unusual about the numbers at this time that would cause us to highlight the internal rate of return," Lee said. "UTIMCO just wants to use as a benchmark the most appropriate standard out there."