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Legislators cry buyer’s remorse on UT’s secrecy for offshore funds

By Matt Lakin, USA TODAY NETWORK — Tennessee

A quick look at how and why the University of Tennessee lobbied to keep some details of “alternative investments” secret. Daniel Connolly, USA TODAY NETWORK – Tennessee

When state Rep. Eddie Smith cast his vote last year, he thought he was helping the University of Tennessee gain an edge in the investment market.

He says he didn’t know his vote would give the university cover to hide fees paid on millions of dollars funneled to hedge fund managers in the Cayman Islands.

“I think people have a right to know what those fees are,” said Smith, R-Knoxville. “Those are public funds. I don’t remember any discussion being had about offshore payments.”

From pitch to passage

The exemption – one of 538 to Tennessee’s Public Records Act – became law in 2017. UT officials cite the law in keeping secret the specifics of the university’s “alternative investments,” many of them stashed in offshore private funds that critics say charge high fees but seldom beat the market.

Smith, who’s vice chairman of the House education committee, says that’s not how UT sold the bill to him and other legislators. He said he didn’t know the extent of the secrecy he voted to grant until a USA TODAY NETWORK – Tennessee story last week shone light on the issue.

“The way I understood it at the time was that we were shielding from public scrutiny the proprietary analysis these managers employ in making investments,” he said. “That’s what we all thought was happening.”

Under the law, UT still must disclose such basic details as the name of a fund, how much money’s in it and the total amount of fees paid for overall investments. But the specific fees paid to individual funds remain secret unless the fund managers agree to make the information public.

“The fee calculations from specific investments may not be available in full to the extent the calculations reveal proprietary investment information,” UT spokeswoman Tiffany Carpenter said.

At least one lawmaker said he’s ready to erase the act from the books. State Rep. Martin Daniel, R-Knoxville, voted against the exemption last year and said he’ll introduce a bill at the next legislative session to repeal it – or at least narrow the scope of secrecy granted.

“It looks like that bill has led to some unintended consequences,” Daniel said. “The monies they’re talking about became public when they were donated to the university, and we need transparency about what it costs on these investments.”

Captions and corrections

As of last June, the UT system’s total investment in private equity funds and hedge funds amounted to roughly $345 million, including at least $199.3 million in offshore investments. That’s about 38 percent of the university’s total investment portfolio.

UT officials have defended the exemption as necessary to make the university’s business attractive to investment managers – and ended up eating some of their words Friday. In a release entitled “The Facts Really Make a Difference,” the UT Office of Advocacy insisted state open-records advocates knew about the exemption and raised no concerns prior to passage.

Fact: Those advocates didn’t know about the bill.

“I wish I had known about it,” said Deborah Fisher, executive director of the Tennessee Coalition for Open Government, which works to ensure access to public records. “There needs to be a better process so these exemptions when they’re passed don’t end up doing something the lawmakers didn’t intend for them to do.”

UT acknowledged the error Friday afternoon.

The law granting the exemption started out as a caption bill – a bill that when filed states its purpose simply as amending a section of the state code, sometimes as much as an entire chapter. Legislators use such bills as placeholders in order to meet filing deadlines, then bend, massage and manipulate the text as needed, with changes often not appearing on the public index of legislation until the bill emerges from committee.

“It’s a fill-in-the-blanks bill,” Fisher said. “This experience right here shows why we need to reform the process for public-records exemptions. If there could have been more scrutiny and lawmakers could have gotten more information, they might not have passed it.”


State Rep. Martin Daniel, R-Knoxville (Photo: Martin Daniel)

Deborah Fisher, executive director of Tennessee Coalition for Open Government (Photo: Provided)

Rep. Eddie Smith, R-Knoxville (Photo: Jed DeKalb)

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