An Alameda County Superior Court judge has ruled that the University of California must disclose how its investments in two of Silicon Valley's top venture capital firms have performed.
A lawsuit filed last year by Reuters alleges that UC -- by allowing Sequoia Capital and Kleiner Perkins Caufield and Byers to provide only partial information on their financial returns -- is flouting a state law requiring disclosure of how public investments fare.
That law, sponsored by then-state Sen. Joe Simitian, D-Palo Alto, came after UC lost an earlier lawsuit brought by the Mercury News.
Karl Olson, the San Francisco attorney who filed both suits, said Tuesday that UC let Kleiner and Sequoia "game the system" by disclosing aggregate returns rather than showing how each individual fund has performed.
Spokespeople for the two venture firms declined to comment, as did UC officials, whom the judge gave until March 11 to appeal.
The Mercury News sued the university system in 2003, shortly after the California Public Employees' Retirement System settled a similar lawsuit the newspaper had filed.
The 2003 suit, filed jointly with a union that represents 18,000 university employees, asserted that because the system receives state money, the performance of venture capital funds in which it invests is public information.
UC officials argued, as had CalPERS, that to disclose those results would lead many venture firms to turn them away as investors. Indeed, Olson said Sequoia at one point threatened to cut the university system out of future funds.
After a judge ruled against the university and the California Supreme Court declined to hear its appeal, UC and CalPERS officials reached out to Simitian, then a freshman state senator. He crafted a bill that clarified how much investment firms that take public money must disclose.
"It was 2005, and the state's declining investment in the UC and other higher ed systems was beginning to be painfully felt," said Simitian, now a Santa Clara County supervisor.
Advocates for the university said they needed more than ever the ability to put money into venture portfolios, which are high-risk but can also reap spectacular returns. "There's a healthy tension between the public's desire to make investments that yield a good result, and the public's right to know," Simitian said.
His legislation made explicit that venture capital, buyout and other investment firms must disclose such information as their internal rate of return and how much they charge in management fees. Other information, such as private valuations of a venture firm's portfolio companies, remained confidential.
Olson, of the firm Ram, Olson, Cereghino & Kopczynski, said Reuters discovered UC's "side deal" with Sequoia and Kleiner after noticing that the university's website included more detailed investment performance from other venture firms.
Sequoia and Kleiner have backed some of the tech industry's top companies over the years, including Google (GOOG), Amazon, Netscape and PayPal. But some industry observers have wondered whether more recent investments, such as Kleiner's multibillion-dollar bets on clean technology, have paid off.
"They had some early big successes, so they looked better when they disclosed the aggregate," said Olson.
The university system's website indicates that as of late 2011, $7 million of UC's $6.3 billion general endowment pool was invested with Kleiner and Sequoia. More than $52 million of the $39 billion UC Retirement Savings Program was held by the two venture firms.
Olson said Judge Evelio Grillo, in his Monday order, said the university must make an "objectively reasonable effort" to comply with the law and post information on the funds.
"The Legislature," Olson said, "has clearly intended this kind information has to be disclosed."
Simitian said he's not surprised by the lawsuit.
"At some point," he said, "somebody was going to test just what the appropriate boundaries of confidentiality are."
Contact Peter Delevett at 408-271-3638 or firstname.lastname@example.org. Follow him at Twitter.com/mercwiretap.
To read the lawsuit online, go to