Spotreporting/FlickrUC Regent Richard Blum
What do Harrah's Entertainment, Washington Mutual and Univision have in common?
They were all involved in private equity deals in which the University of California invested and where financier and UC Regent Richard Blum had a business interest, according to a new report. The Harrah's deal also involved UC Regent Paul Wachter, Gov. Arnold Schwarzenegger's longtime financial adviser.
Spot.us reporter Peter Byrne has been zeroing in on the overlap between the UC's investments and those of some of the well-connected and influential regents, particularly Blum and Wachter, both of whom have served on the panel's investment committee.
The latest report in the Sacramento News and Review sheds more light on the UC's investment of nearly $750 million in private equity deals involving a number of firms where Blum, Wachter or both had financial interests.
Critics called the deals clear examples of conflict of interest.
"A third-grader can see that what the regents on the investment committee are doing is unethical," said Robert Weissman, president of Washington, D.C.-based Public Citizen. "It goes far beyond the 'appearance' of a conflict of interest. These are core conflicts of interest."
The bylaws that govern the UC Regents Investment Committee state that the group "manages the investments and investment properties of the Corporation."
But UC officials say no conflict of interest exists because the UC Treasurer’s Office – not the Regents – makes decisions about specific investments, investment managers or investment management firms, and hires outside managers to choose individual equity investments.
The Regents approve investment policies, asset allocation, performance benchmarks, risk budgets and investment guidelines, according to a statement from Lynn Tierney, associate vice president for communications.
The UC Regents’ conflict-of-interest policy prohibits them from offering advice or other recommendations to the Treasurer’s Office about selection of investments or investment managers, Tierney's statement said:
It’s misguided to assume that there’s a conflict of interest simply because there’s an overlap between personal investments by University of California Regents and investments made by the UC Treasurer’s Office. The real issue is whether Regents communicate with the Treasurer’s Office about specific investments. They haven’t and wouldn’t, period. A strong policy ensures that there is no such communication, and that there’s a separation of duties.
Blum, who is married to U.S Sen. Dianne Feinstein, D-Calif., is chairman of the board of Blum Capital. He's also principal executive and an owner of private equity firm TPG Capital, which has partnered with another private equity firm, Apollo Management. Wachter has "disclosed multimillion-dollar holdings in a range of Apollo Management funds," according to the Spot.us story.
In one example of the private equity deals where Blum or Wachter's financial interests and the UC's investments crossed paths, investment firms TPG Capital, Apollo Management and the Blackstone Group partnered in a leveraged buyout of Harrah's Entertainment for $30.7 billion, placing billions of acquisition debt on the casino empire's books as a result.
At that time, Blum had investments worth more than $1 million in TPG funds, and Wachter had investments worth up to $1 million in two Apollo investment funds. The UC – through its general endowment and retirement funds – had $200 million to four private equity funds that financed the Harrah's buyout.
Since the deal, the Las Vegas-based casino empire has not been able to generate enough cash flow to pay off its debts - including payments to UC. The university's investment in these private equity funds had lost up to 40 percent of its value as of March 2009, according to the Spot.us story.