The University of California could have earned up to $4.8 billion more on its investments for retirees during the past decade simply by outsourcing them to good advisers.

And when a UC regents' committee decided to do just that by firing the university's internal investment staff, it buried the announcement by timing it for Election Day on Nov. 5, 2002 -- hoping the media would have their hands full with other news.

Those are some of the key revelations that came to light Tuesday in documents released to the Mercury News after a state Supreme Court ruling.

The ruling, issued Monday, denied UC's request to be exempt from disclosing transcripts of two investment meetings.

The ruling sets a new standard in forcing California's public universities to disclose discussions about important investments. The disclosure also shows how regents tried to cover up the under-performance of those investments.

At one point, UC Regent John Moores says, ``I think you need to provide at least a one-sentence cover for why we're doing this . . . I don't think we want to say that we're doing it because we're embarrassed to find out we lost $3 billion.''

Impact minimal

However, the direct impact on retirees and taxpayers is minimal because the fund still performed well enough to meet UC's pension commitments -- partly because of bond investments acknowledged as lucky.

The documents were part of a series of disclosures demanded in a lawsuit filed in April by the Mercury News, the Coalition of University Employees and a retired UC-Berkeley professor, Charlie Schwartz. The lawsuit argued that taxpayers and employees of the publicly funded university have a right to know how its $58.5 billion retirement and endowment fund has performed. In 2002, the value of the university's endowment fund fell 10.7 percent, more than most university endowments of similar stature.

The transcript disclosures bring to an end nine months of legal tussles. The state Supreme Court initially ruled in September that the requested information should be made public, and UC complied. However, it resisted releasing two sets of transcripts from closed-door sessions in October and November 2002.

These documents contain sensitive discussions about how UC regents sought to deal with under-performance in investments in U.S. stocks -- even when the market was doing well.

The transcripts convey a UC committee clearly under pressure to turn around a performance that trailed the overall market by about a percentage point from at least 1984 onward. Investments in U.S. stocks make up slightly more than half of UC's assets.

According to the released transcripts, Treasurer David Russ calculated that the university could have added $2.5 billion to its $25 billion portfolio of U.S. stocks from 1992 through 2002 had it simply pegged its investments to overall market indexes -- or benchmarks based on the Standard & Poor's 500 and the Russell 3000. On top of that, it could have added another $2.3 billion through management by good, outside professionals deciding which indexes to invest in, Russ concluded.

That under-performance wasn't discovered until 2000 or so, UC advisers made clear in the transcripts, because UC had not set benchmarks for comparison. Also, the fund's overall performance had done well enough to easily meet UC's commitments to retirees.

During the closed-door meeting Oct. 29, 2002 of the UC Regents' Committee on Investments, UC Senior Vice President Joseph P. Mullinix said he was going to meet with the investment staff on Nov. 5, Election Day, to tell them about the firing decision. Regent Peter Preuss responded: ``The Chronicle will be full of other stuff.''

``When is this going to hit the fan?'' asked Regent Norman Pattiz later. ``The 6th,'' said Regent Judith Hopkinson. ``November 6th,'' repeated Pattiz. ``All right. That's good.'' The transcript then recorded: ``Laughter.''

Discussion of spin

Also, there's lengthy discussion about how the regents should best spin the announcement, and the related disclosure of UC's investment under-performance.

At one point, Moores said: ``I think we're entitled to at least have one sentence that says, you know, that the treasurer's office analysis shows blah-blah-blah.''

Bruce Lehmann, UC-San Diego professor and committee consultant, added later: ``Thank God the doors are closed.''

Elsewhere in the October 2002 transcript, the regents discuss how UC was lucky that investments in other areas -- namely bonds -- helped the overall fund perform quite well during the 1990s. Professor Lehmann told Treasurer Russ: ``It was performance based upon a lucky bet. Interest rates did come down, and if they hadn't you guys would have gotten creamed.''

Other results released to the Mercury News in October showed that the University of California was investing its pension money into private equity -- including venture capital and buyout funds -- at the riskiest time.