SANTA ANA, Calif. – The University of California was among the biggest victims of the implosion of Enron Corp., losing almost $145 million in retirement and endowment funds when the Houston company collapsed amid allegations of fraudulent accounting.
It was bad, but it could have been worse, according to University of California officials.
In mid-November, while many shareholders continued to hope that Enron’s merger with Dynegy Inc. would save the troubled company, the University of California treasurer’s office had its doubts – and started liquidating the 1.75 million shares that the university’s retirement and endowment funds actively managed.
The quick-thinking saved millions.
“The UC staff was in regular conversations with a variety of analysts,” said Trey Davis, a University of California spokesman. “We also called Enron directly a number of times, but the calls were often returned late and were not forthcoming on the more important issues.”
As a result, the University of California sold all its Enron stock, at an average price of $5.33 a share.
By the time Dynegy called off the deal on Nov. 28, the liquidation was complete and the University of California had saved almost $8.7 million that it most certainly would have lost if it held on until
Enron filed for bankruptcy and was thrown off the stock exchange.
“By getting out early, we avoided even more losses,” Davis said.
At their peak, the university’s total holdings in Enron- 1.75 million shares in accounts actively managed by University of California staff and 478,000 shares in a Russell 3000 index fund managed by State Street Global Advisors, were worth $155 million, or less than one half of one percent of the University of California $55 billion in retirement and endowment assets.
Unlike the university Treasurer’s Office, State Street held onto Enron until the bitter end because its fund simply mirrors the index. When it finally
sold the shares, it sold them at an average price of 36 cents, and the University of California had to book a loss of $34.4million on that portion of its portfolio, or about $2.4 million more than if State Street had been able to follow the university’s lead.
In December, it joined a class-action lawsuit, one of several competing suits against executives of Enron and Arthur Andersen, Enron’s auditor.
It has since become lead plaintiff in that suit and its lawyer, William Lerach, hopes to make the University of California the lead plaintiff in the consolidated suit.
Not everyone’s cheering the university’s handling of its Enron investment, however.
Cliff Fried, a top official with the University Professional & Technical Employees union, which represents about 10,000 workers covered by the
University of California retirement system, said university officials should have known to pull the plug on Enron long before November.
“They should have gotten out sooner,” Fried said.
Fried claimed the Enron investment was based on politics more than economics and grew out of a controversial review of the University of California’s investment policies in 1999 and 2000 that eventually sent veteran Treasurer Patricia A. Small packing.
The review was spearheaded by Gerald L. Parsky, the Los Angeles financier, University of California regent and California state chairman of President George W. Bush’s 2000 campaign, as well as outside consultant Wilshire Associates, which also contributed to Bush’s campaign.
As a result of their study, the University of California began to move toward a more diversified portfolio than Small favored.
One of the stocks that was added to the university’s portfolio during that time was Enron, which was also a big supporter of the Bush campaign.