| SAN FRANCISCO, April 26
SAN FRANCISCO, April 26 The University of
California could be forced to disclose closely guarded
information on the investment performance of venture capital
funds managed by Kleiner Perkins Caufield & Byers and Sequoia
Capital after a judge last week allowed a lawsuit over the issue
to move forward.
The lawsuit, filed in California state court in Oakland by
Reuters America, a unit of Thomson Reuters, argues that the
state Public Records Act requires disclosure of specific
investment-return information for the university system's $10.65
billion endowment fund.
The university says the investment-performance information
for the individual funds is not in the public record because it
does not have the data. It says it only receives aggregate data
on its holdings in multiple funds run by the two firms -- a
structure the lawsuit alleges is designed to avoid disclosure.
The lawsuit illustrates the conflict between the desire of
public investment funds to invest with top-tier venture firms
and the desire of those firms to keep their performance a
secret. Many public institutions now use so-called "blocker"
funds that are designed to satisfy disclosure requirements while
keeping detailed investment performance data under wraps.
The University of California "takes compliance with the
Public Records Act very seriously, and has complied in this
case," said Dianne Klein, a university spokeswoman. "We believe
the lawsuit is without merit, and will vigorously defend that
position in court."
Thomson Reuters counsel Karl Olson said, "If Kleiner Perkins
and Sequoia are really the cream of the crop, they should be
happy to disclose fund-level performance."
A spokeswoman for Kleiner Perkins declined to comment. A
spokesman for Sequoia declined to comment.
California's public-records law, which was amended after a
2003 lawsuit forced the University of California to disclose
investment returns, shields some types of investment data from
But it explicitly states that other pieces of information,
including the dollar amount of the commitment made, the net
internal return and the dollar amount of cash distributions
received, are not exempt from disclosure.
The Reuters lawsuit, filed in January, stems from a request
for individual fund details on the university's investments in
Kleiner and Sequoia funds by Mark Boslet, senior editor at
Thomson Reuters' Venture Capital Journal and PeHub, an online
publication about private equity, buyouts and venture capital.
The university first said it had some of the data, then said
it did not, and then provided aggregate data for the Kleiner and
Not disclosing information because the university does not
have it amounts to flouting public-records law, Thomson Reuters
said in its suit. The law "requires certain information to be
disclosed and does not allow a public agency to hide behind the
excuse that it doesn't keep the information," the suit says.
The suit also says that Boslet asked UC for detailed returns
information on Accel VIII, a fund started by Accel Partners in
2000. The university provided information on Accel, allowing
Boslet to write a blog post on PeHub dated Nov. 8, 2011 stating
that the university had given Accel $11.7 million and Accel had
distributed $11.1 million. The university's net asset value in
its remaining Accel VIII investment totals $3.1 million.
On its website, the university provides updated
individual-fund level returns for all venture funds in its
portfolio except the Accel fund, the five Kleiner funds and the
five Sequoia funds in which it has invested.
Last week, Judge Evelio Grillo denied the university's
motion to narrow the suit. A case management conference is
scheduled for May.
Public records laws caused problems for venture-capital firms
about a decade ago when many public groups started disclosing
returns. Since then, many states have clarified their laws to
detail exactly what must be disclosed, and most venture-capital
firms have grown used to the possibility that their returns
could become public. However, several top venture capital funds
generally do not take investments from public groups they
believe could disclose their returns, lawyers, consultants,
investors and advisers say.
While even those top firms are not in a position to turn
down all direct investments of public money, they can limit it
to states and institutions with public-records laws and policies
they consider favorable. For example, some public universities,
such as the University of North Carolina and the University of
Virginia, have separate, private foundations for their
endowments that do not have to disclose returns.
Public money was once the largest source of funds for
venture-capital firms, but that has changed in recent years.
Public pensions make up just 7 percent of all venture-capital
funds, according to Dow Jones LP Source. Today, the largest
investor group is sovereign wealth funds, providing 21 percent
Public investors that do get into the more exclusive firms'
funds sometimes have to agree to conditions, such as not
receiving written breakdowns on returns at each individual
underlying fund or knowing which fund holds which investment,
investors and lawyers say.
A common technique is the "blocker" fund, often a type of
"fund of funds" that holds investments in many different
individual investment vehicles. When a public records request
comes in, what comes back is the return for the blocker
structure, not the underlying funds that comprise it, lawyers