By Peter Byrne Story update: A story from Peter Byrne while researching this piece looked into the financial ties of UC regent Richard Blum and Governor Arnold Schwarzenegger. UC regents, Schwarzenegger and Wachter - Are they making a profit from University investments? Republished by the SF Public Press and Sacramento News & Review. The piece caught the attention of Senator Leland Yee who subsequently called for an audit of the UC system.With thousands of students protesting huge tuition hikes, the public needs to know who benefits from controlling the University of California’s $53 billion in Wall Street investments. That is billion, with a B!
Several very wealthy, politically powerful men are fixtures on the regent's investment committee, including Richard C. Blum (Wall Streeter, war contractor, and husband of U.S. Senator Dianne Feinstein), and Paul Wachter (Gov. Arnold Schwarzenegger’s long-time business partner and financial advisor). The probability of conflicts of interest inside this committee—as it moves billions of dollars between public and private companies and investment banks—is enormous. While some of this mammoth cash exchange takes place in the sunlight of the public eye, much of it is done behind closed doors, and the regents decline to disclose the names and activities of many of their private equity investment partners. "Dark pool" investments of this type are not available to ordinary investors--you have to know someone who manages them--like Messrs. Blum or Wachter.
It is no accident that most of the appointed regents are multi-millionaires with little or no experience in education, but with tons of experience in making lucrative deals, often by leveraging public funds. A preliminary investigation shows that the regents have invested in firms and concerns in which Blum and Wachter and other regents, including Governor Schwarzenegger, who is an ex officio regent, may have financial interests. In addition to performing their other duties, the regents operate a very exclusive type of investment club; its members are in a position to personally benefit from insider knowledge, should they chose to do so. For example, when they make decisions to re-allocate billions of dollars in equity investments, the stock market is substantially affected. And the regents do not refrain from investing substantially in entities tied to their own businesses.
Although Blum may be the most politically powerful regent, other regents are also masters of the dark art of private equity investing; historically, the regent's investment committee has been plagued by self-dealing. By following a labyrinthine trail of public records, creating databases, and interviewing investment experts, this investigation proposes to determine to what degree (if any) the current regents have been spinning public money intended to finance education into a source of financial leverage (and income) for friends, business partners, and themselves.
See pitch.
Please see my web site www.peterbyrne.info for dozens of clips and lists of awards, grants, etc., including previous stories on Blum-Feinstein, Wachter-Schwarzenegger. I have a many years of experience investigating financial and political shenanigans and the national awards to show that my work is of the highest professional calibre. My associate researchers range in experience from student to seasoned pro.
Diploma mills
Regent Blum, it turns out, has an abiding interest in education—a financial interest: while serving as chairman of the Regents, and head of the investment committee, he took control of a very profitable, national network of “diploma mills,” worth about $3 billion. These “career education” schools rely on federally subsidized student loans to generate profits that are then privately invested. Some of Blum’s schools have been investigated by government agencies (and sued by individuals) for, allegedly, delivering substandard educations, and, allegedly, concentrating on generating government-guaranteed student loan revenue at the expense of providing students with quality educations. Among other items of interest, we will examine how Blum’s role in profiting from federally guaranteed student loans is, possibly, related to the issue of the creeping privatization of the University of California system that has ratcheted up ever since Blum was appointed regent in 2002 by Governor Gray Davis. For example, as the UC system becomes increasingly expensive (and racially exclusive), lower income students are turning toward diploma mills.
Capital projects
From his base in San Francisco, Blum, who is a major force in the state and national Democratic Party, manages private equity investments for a number of publicly-funded universities, generating substantial management fees and business opportunities for himself. He is deeply embedded in a national network of private-sector bankers with interlocking interests in an array of public pension funds and educational institutions and public works projects. Historically, Blum has specialized in operating firms that are dependent upon government contracts. It is of note that Blum Capital, a multi-billion private investment firm, has benefited from managing hundreds of millions of dollars in California’s public employee pension fund (CALPERS).
National-award winning investigative reporter Peter Byrne will lead a team of forensic investigators, including R.V. Scheide of the Sacramento News & Review, as it unravels the complex web of financial connections that bind the Regents into an Investor’s Club.
This type of investigative reporting is very labor- and time-intensive, but, if funded, we aim to publish the results by April (substantial preliminary legwork has been done). Before publication, a panel of politically non-partisan ethics experts will be asked to comment on the findings. And the results could have a timely political impact: particularly if Blum's wife, Feinstein, decides to runs for governor in 2010. Certainly the results will be of interest to students whose tuition keeps increasing even as the UC system pumps ever more public money into the private accounts of Wall Street.
The final product will be a series of 2 or 3 articles at about 3,000 words each. The project will take about 300 hours and involve research expenses (database and gumshoe) and fees for associate researchers.
