UK Pension Funds £31 Billion Poorer
November 26 2009, 9:30 amA new report from GOAL Group projects that between 2007 and 2009 UK Local Authority (LA) pension funds’ have lost £31 billion on their investments. Only £500 million of these losses will be recovered by UK local authorities participating in (mainly US) class action lawsuits arising from this period.
However, the report also highlights that if class action participation rates do not improve, a number of pension funds will effectively forego their right to recoup some £125 million of recoverable funds, which will instead be distributed amongst only those who filed a claim.
According to GOAL Group, this is a wake-up call to the UK public sector pension funds that are currently missing out on their legal right to claim damages through the US courts – despite high profile cases such as North Yorkshire and Merseyside County Council pension funds applying for lead plaintiff status. With the onset of the financial markets crisis – the collapse of the subprimemortgage market and the emergence of fraudulent Ponzi schemes – the number of LA pension funds participating in class actions has risen significantly. However, a proportion of pension funds are still not involved.
For UK local authority pension funds, GOAL Group’s research shows that while almost £8.5bn was lost and £140 million open to be recovered between 2007 and 2008, this increased to £22.5bn lost and £370 million open to be recovered between 2008 and 2009.
West Midlands Pension Fund is one local authority that continues to play an active role in class action participation. Tony Doyle, Senior Investment Manager- Equities & Corporate Governance, West Midlands Pension Fund, comments, “We have been involved in numerous class actions over the years, varying in size, including A.T. & T. Wireless, Cable & Wireless, Federal Home Loan and Royal Ahold NV. We have recovered over $ 700,000 to date.
“The Fund has always supported good governance challenging companies that do not meet best practice. We perceive poor governance as a risk to a fund’s long-term financial interests. The Fund therefore submits class actions globally where it believes that it has suffered a financial loss through fraudulent or irresponsible corporate behaviour. Responsible investing is imperative in a financial downturn, and class action participation is just one element of the Fund’s approach to this.
“More than ever, all funds must proactively ensure that they are fulfilling their fiduciary duty to shareholders and should encourage corporate management to behave honestly and responsibly. Participating in shareholder litigation, where appropriate, is an effective tool and has returned over half a million dollars to the Fund to date. All local authority pension funds should consider protecting both their immediate and long-term interests.”
Stephen Everard, Managing Director, GOAL Group, comments, “It is the judgement of the legal profession that there is a clear duty of care for institutional investors to register claims on behalf of their clients. Our research shows that aside from fulfilling corporate governance responsibilities, there is also a growing need for local authorities to plug the escalating pensions gap. High-profile cases have helped flag up the benefits of class actions but an alarming proportion nevertheless continues to remain unclaimed.
“Although the Sarbanes-Oxley Act and European equivalents have suppressed the possibility of further Enrons and Parmalats occuring, the international credit crisis continues to lead to a surge of class action lawsuits affecting local authority pension fund investments, the resolution of which will take anywhere between five and seven years. If recent cases such as the RBS class action lead to resolution, then it is likely to see the largest settlement ever in the history of US securities litigation, with payouts eclipsing even the Enron case.
“With the financial markets crisis set to lead to a steady stream of smaller cases, the clear message is that all local authorities should be taking immediate action in order to recoup escalating losses on a permanent basis in order to ensure their beneficiaries’ interests are properly safeguarded in the future. It is true that participating in a class actions requires timely and accurate information about the relative merits and procedural processes, and time and resources to review and evaluate relevant settle¬ment provisions. Investors must then cross-reference these outputs against extensive individual trading activity data and com pile and submit the often complex paperwork necessary to make a valid claim.
“But outsourced, specialist automated services are available on the market to process class action claims without incurring high expense, often granted on a no-win, no-fee basis. Those funds best placed to come out the other side of the downturn will be those making the most of such services.”
Source: Global Custodian | Published: 25 November 2009
