investment losses | Pension360

New York City Pension Wants In On Lawsuit Against Real Estate Firm Accused of Inflating Prices

The New York City retirement system is attempting to join a lawsuit already being brought by two pension funds against a real estate firm that allegedly inflated its performance figures.

The two pension funds already heading the case, State Teachers Retirement System of Ohio (STRS) and the Ohio Public Employees Retirement System (OPERS), are claiming millions in losses.

From ai-cio.com:

American Realty Capital Properties (ACRP), a real estate investment trust provider, is facing a growing group of investors claiming it fraudulently inflated performance figures.

The $159 billion New York City retirement system and TIAA-CREF have filed complaints against the firm, requesting to join in an ongoing lawsuit led by two Ohio public pension funds.

In October 2014, nine days after the Ohio pensions first filed suit, the real estate firm admitted it had made intentional accounting errors, and purposely failed to correct other mistaken figures. Its stock plummeted by 30% within hours of the revelation, and closed trading for the day having lost roughly $2 billion in market capitalization.

[…]

“In light of general investor concerns about the quality of the company’s accounting functions, internal controls, and corporate governance (as highlighted by several embarrassing reporting mishaps), ACRP desperately sought to reassure investors that it had righted the ship and that its internal control systems were above reproach,” TIAA-CREF’s complaint stated.

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JP Morgan Reaches Settlement With Pension Funds in Suit Over Toxic Securities

JP Morgan and several pension funds have reached a settlement in a class action lawsuit filed against the bank.

The lawsuit stems from investment losses sustained from mortgage-backed securities sold to investors, which, the lawsuit claims, were “far riskier than represented”.

Under the settlement, JP Morgan will pay $500 million to investors, including the Public Employees’ Retirement System of Mississippi.

From Chief Investment Officer:

JP Morgan and a group of pension funds have reached a preliminary, $500 million agreement to settle a mortgage-backed securities lawsuit, according to court filings and the Wall Street Journal.

The pension funds, including the New Jersey Carpenters Health fund and Public Employees’ Retirement System of Mississippi, represent a class of investors who purchased securities they allege were “far riskier than represented, not of the ‘best quality’ and not equivalent to other investments with the same credit ratings.”

Bear Stearns issued the nearly $18 billion worth of mortgage-backed securities in question. JP Morgan, now the world’s largest banking corporation, bought the foundering firm for $10 per share in March 2008, as the financial crisis sharply escalated.

On Thursday, lawyers for the pension funds filed a letter with the presiding New York judge indicating a preliminary settlement had been reached.

“Following extensive negotiations,” the letter stated, “the parties have reached agreement and executed a binding term sheet containing the material terms of the settlement.”

All parties have a deadline of Feb. 2 to give the court a detailed outline of the settlement.

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Why Pensions Rarely Sue Their Consultants, Managers

The UK’s British Coal Staff Superannuation Scheme has filed a lawsuit against consultant Towers Watson for investment losses stemming from allegedly “negligent investment consulting advice”.

These types of lawsuits – a pension fund suing their consultant or investment manager – are rare. Christian Toms, a lawyer who worked with a Dutch pension fund that sued its investment firm (Goldman Sachs) in 2012, explains why these situations are so rare.

From the Tally:

Why are these kinds of legal actions, where pension funds sue their investment consultants or fund managers, so rare?

Pension funds tend to look at legal actions in a different way to hedge funds or investment banks. They are very cautious about spending a lot of their members’ money pursuing something that’s not a ‘safe bet’. For this reason, the cases we see tend already to have a lot of meat to them – a clear failure to invest in a particular way that was promised, or a complex investment that was not right for the client.

Does the argument that investment is always risky, and investors should be aware they can lose their money, make these cases inherently harder to bring?

One of the big issues is this ‘hindsight’ argument. The focus of a legal case always has to be on what was going on at the time. Did the investment manager do enough due diligence on the investment? Did they properly understand the risks, and what the clients’ risk profile was? Would a reasonable manager have done what the investment firm did in this case?

This is particularly relevant for pension funds as they are not necessarily the most aggressive investors in the world, and if they end up in a riskier structure or a more complex investment than was necessary, that could give you grounds for an argument.

Toms also talks about the possibility that we could see more of these lawsuits:

Fiduciary management is a growth area in the industry. Could this lead to more disputes of this kind?

We are seeing this more and more. Consultants are taking on more asset management responsibilities. But even if they aren’t, there may still be grounds – a duty of care in relation to the advice given, perhaps. Was the advice appropriate?

In the Towers Watson/British Coal case, if they were specifically asked to implement a currency hedging strategy, it may be a question of what was appropriate. What was the need at the time and what did they do? Was what they did what a reasonable manager would do?

Generally, with pension funds, I’d say it would do all of them a benefit to more closely scrutinize their investment firms when something has gone wrong, rather than just saying ‘oh well, that’s life, it’s unfortunate, let’s fire the asset manager and move on’.

Read the full interview here.

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Towers Watson Sued Over Advice That Allegedly Led to “Substantial Losses” For Pension Fund

Consulting firm Towers Watson faces a lawsuit from the UK’s British Coal Staff Superannuation Scheme.

The pension fund, one of the UK’s largest, alleges that Towers Watson gave them “negligent investment consulting advice” that eventually led to significant investment losses.

Towers Watson denies the allegation.

From Chief Investment Officer:

Global consulting firm Towers Watson is being sued by one of the UK’s largest pension funds for more than £47 million ($72 million).

The UK’s British Coal Staff Superannuation Scheme has filed a lawsuit in the US against the consultant alleging “negligent investment consulting advice” relating to a currency hedge.

The trustees of the £8.7 billion pension issued Towers Watson a letter of claim in September, according to a 10Q filing made to the US Securities and Exchange Commission (SEC) on November 5. The lawsuit relates to a currency hedge on a £250 million investment in a local currency emerging market debt fund, which was made in August 2008. The advice was provided by Watson Wyatt, which merged with Towers Perrin to create Towers Watson in 2010.

According to the regulatory filing, the claim alleges that the currency hedge caused a “substantial loss” to the pension fund between August 2008 and October 2012. The loss was valued at £47.5 million by the pension fund.

A spokesperson for Towers Watson told CIO that the firm “disputes the allegations brought by the British Coal Staff Superannuation Scheme and intends to defend the matter vigorously.”

The SEC filing stated: “Based on all of the information to date, and given the stage of the matter, [Towers Watson] is currently unable to provide an estimate of the reasonably possible loss or range of loss.”

The consultant was set to have issued a letter on the matter to the pension fund on or before December 23, 2014, the filing said.

The British Coal Staff Superannuation Scheme declined to comment.

The British Coal Staff Superannuation Scheme manages over $13 billion in assets.

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Court Dismisses Pensions’ Lawsuit Against BNY For Housing Crash Losses

An appeals court has dismissed a lawsuit brought by a handful of public pension funds against BNY Mellon. The lawsuit stemmed from investment losses on mortgage-backed securities and BNY’s alleged neglect to properly evaluate the quality of the securities.

From BenefitsPro:

The U.S. Court of Appeals for the 2nd Circuit has upheld a lower court’s decision to dismiss a class-action brought by pension funds against BNY Mellon.

Among others, Chicago’s police pension fund and the Grand Rapids, Michigan, city retirement fund sued BNY Mellon over claims related to losses from residential mortgage-backed securities suffered in the wake of the housing market crash.

BNY was trustee to 530 RMBS originated by Countrywide Home Loans. The plaintiffs alleged that BNY Mellon breached its fiduciary and trustee obligations by not overseeing the quality of the home loans built into the securities.

The plaintiffs had sought to build a class of any investors that owned any of BNY’s 530 mortgage securities.

In April of 2012, a U.S. District Court judge for the Southern District of New York granted BNY’s motion to dismiss the case on the grounds that the named plaintiffs had only invested in 26 of the securities, and the pension funds did not have the “standing” to bring claims against securities they didn’t own, according to court documents.

In upholding that decision, the appellate court deterred a much larger class-action, but did say the pension funds could bring claims against the 26 securities they actually invested in.

“In short, the nature of the claims in this case unavoidably generates significant differences in the proof that will be offered for each trust,” wrote Circuit Judge Debra Ann Livingston.

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