The Miami Herald

The Miami Herald

September 26, 2003

FUND COULD RUN PRIVATE SCHOOLS

Author: JONI JAMES, jjames@herald.com
Edition: Final
Section: Metro & State
Page: 1B
Dateline: TALLAHASSEE
Article Text:
The pension fund for Florida's public school teachers may soon become the majority shareholder
in the nation's largest for-profit school operator, under an investment plan that has prompted
criticism from public school advocates but received accolades from market analysts.
Liberty Partners Inc., a New York money management firm whose sole client is Florida's public
employee pension fund, is the primary bidder in a move to buy out Edison Schools Inc. The
beleaguered 11-year-old, publicly traded Edison has aggressively pushed to contract with school
districts to run public schools, including Reeves Elementary School in Miami.
Liberty Partners, along with Edison founder and Chief Executive Officer Christopher Whittle, have
proposed paying shareholders about $110 million from Florida's $93 billion pension fund. It's not
yet decided if the pension fund, or some other investor, will absorb Edison's debt, which would
cost $70 million more.
Florida's indirect bid to buy the longtime money-losing Edison drew rebukes Thursday from
Democrats and public employees' unions, which questioned whether the investment was a lastditch effort by Gov. Jeb Bush, who is strongly in favor of privatization, to resuscitate Edison.
``Our decision to finance Edison is baffling,'' said state House Democratic Leader Doug Wiles of
St. Augustine. ``I have deep concerns about investing our state employees' retirement funds in a
company that seeks to eliminate public jobs. . . . I'm certain that the majority [of public employees]
would not approve of a significant investment in a business that seeks to eliminate their own
jobs.''
BUSH'S VIEW
The governor, whose push to expand private-school vouchers and charter schools has angered
the state's teachers union, denied any involvement in the plan to buy Edison, saying he only
learned of it this week.
Bush, Attorney General Charlie Crist and Chief Financial Officer Tom Gallagher are the trustees
for the State Board of Administration, which invests the pension on behalf of the employees of
811 local and state government agencies, including school districts.
``We have a responsibility as trustees to create the policy, but we don't make the [investment]
decisions,'' Bush said. ``I didn't know about it. I shouldn't know about it. And that's it.''
Crist also said he was not aware of the investment plan until this week. Gallagher could not be

reached Thursday.
LIMITED SUCCESS
Edison, once trumpeted as the savior of public education by bringing market philosophy to school
operations, has never fulfilled its promise. Though it runs 150 schools nationwide, it has had
limited success.
A prime example is Miami-Dade, where the school board became the first in Florida to hire
Edison to run two schools but reneged on the second one after the first school, Reeves
Elementary, went through such turmoil in the transition.
No other Florida district has hired Edison.
Liberty Partners' buyout plans were made public in July.
But it was only this week, in a Wall Street Journal story about how public employees' unions are
getting more involved in directing pension investments in California, that it became clear that
Liberty Partners' sole client was Florida's public pension fund.
Liberty Partners and Edison officials both declined to comment Thursday.
Coleman Stipanovich, the day-to-day director of the state pension fund, said he never discussed
the potential investments with Bush, Crist or Gallagher until after the Journal story ran Tuesday,
when he sent the three an electronic message.
``I have not mentioned this prospective investment to you until now, and only do so in light of the
attached article, which may lead to you being asked questions,'' Stipanovich wrote.
RESISTANCE EXPECTED
Stipanovich said he became aware of the plan six months ago when Liberty Partners, in a break
with protocol, brought its plans for Edison to his attention before going forward, aware that the
investment could have political ramifications.
In the 11 years it has invested for the state, Liberty Partners has averaged an annual return of
12.1 percent, compared to 9.7 on the Russell 3000 Index, which measures the investment
performance of the largest 3,000 U.S. companies.
The state currently has a total of $1 billion invested with Liberty Partners.
Technically, Stipanovich said, Liberty, whose contract calls for finding private companies to invest
in, need not have alerted him. The state's contract, aimed at giving Wall Street experts the
greatest leeway to improve investment returns, does not require state staff to approve
investments as long as they meet the state's guidelines, which the Edison deal did, he said.
DECISION DEFENDED
``At the end of day we made the business decision that it was a good investment based on the
information from Liberty Partners,'' Stipanovich said Thursday. ``They took the position this was a
well above-average investment opportunity. And we just continued the practice we always have.''
Market analysts largely concurred on Thursday, saying Edison, which saw its stock drop last
year, is poised for a rebound, given recent stockholders' demands for cost-cutting and
diversification.

Besides running summer schools and after-school programs - which tend to face less political
opposition - the firm has also launched a new consulting service for small school districts that is
expected to be profitable.
Some of Edison's largest shareholders, who have filed lawsuits arguing that Liberty's buyout price
is too small, agree that the company is undervalued.
The buyout plan, announced in July, came just before Edison released its latest quarterly report,
which showed a profit for the first time.
Herald staff writer Mark Caputo and researcher Tina Cummings contributed to this report.
Copyright (c) 2003 The Miami Herald
Record Number: 0309270144