By Sarah McBride
SAN FRANCISCO Feb 5 The University of California must make public the closely guarded performance of some top-tier venture capital funds in which it has invested a portion of its $10.65 billion endowment, a judge said on Monday.
No information on the funds, managed by Kleiner Perkins Caufield & Byers and Sequoia Capital, will come out immediately. The court is giving the university a stay until March 11 to allow the regents a chance to appeal.
"I regard this as a victory," said Karl Olson, outside counsel for Reuters America, which brought a lawsuit seeking disclosure. Reuters America is a unit of Thomson Reuters Corp .
A representative for the University of California declined to comment. Representatives from Kleiner and Sequoia, which are not themselves parties to the case, declined to comment.
The order goes a step farther than earlier rulings because it calls for the university to make an "objectively reasonable effort," based on "what the legislature would consider to be a reasonable effort," to obtain performance information on the funds. Previously, the judge had called for a "good-faith effort."
The lawsuit, filed last year in California state court, argued that the state Public Records Act requires disclosure of specific investment-return information for money invested with investment funds, including Kleiner Perkins and Sequoia Capital.
Reuters argued that the public has an interest in seeing details on the funds' performance, and previous rulings have held that the university's returns are public records.
The university said in response that Kleiner and Sequoia considered the information confidential and that it receives only aggregate returns data from those two firms - a structure the lawsuit said was designed to avoid disclosure.
Some venture capital firms strive to keep information about their performances secret because they fear a bad run might hurt their reputations, other venture capitalists say.
The university failed to show that the performance data for individual funds "does not relate to the conduct of the people's business or that it does not have constructive possession of that information," wrote Judge Evelio Grillo in his order. Constructive possession means the right to control the records.
"Assuming that the regents can obtain the fund level information, it is not exempt from disclosure," he wrote. Sequoia has already made some returns data public.
The lawsuit illustrates the conflict between the desire of public investment funds to invest with top-tier venture firms and the desire of some of those firms to keep their performance under wraps.
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 disclosure, such as details about the performance of the underlying companies that make up venture funds.
It explicitly states that other pieces of information are not exempt from disclosure, including the dollar amount of the commitment made, the net internal rate of return and the dollar amount of cash distributions received.
The Reuters lawsuit, filed a year ago, stems from a request for individual fund details of the university's investments in Kleiner and Sequoia Capital funds by Mark Boslet, senior editor at Thomson Reuters' Venture Capital Journal and at PeHub, an online publication about private equity, buyouts and venture capital.
On its website, the university provides updated individual-fund level returns for all venture funds that date from before 2007 in its portfolio except a handful of funds. They are an Accel Partners fund the university has since provided information on, the Kleiner funds and the Sequoia funds.
More recent fund returns are not considered meaningful, as venture capital can take several years to start showing returns.
Public-records laws caused tension over suddenly public information 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 that don't require disclosure of returns.
The case in Superior Court in the State of California, County of Alameda, is Reuters v The Regents of the University of California, case no. RG12613664.