UK pension funds to recoup £1.4 billion in class actions
October 21 2010, 1:37 pmNew report from GOAL Group highlights losses suffered by pension funds in Northern Europe and amounts likely to be recouped through securities class actions
A new report from GOAL Group, the leading global class action services specialist, shows that over the next few years, £1.4 billion will be recouped by UK pension funds participating in US class action lawsuits connected to losses suffered at the peak of the financial markets crisis in 2008. GOAL Group’s findings identify that Northern European pension funds have lost £51 billion on their US investments in 2008, some £21 billion of which is attributable to UK pension funds. Furthermore, the report also highlights that if class action participation rates do not improve, a number of UK pension funds will effectively forego their right to recoup some £368 million of recoverable funds. This is a wake-up call to pension funds that are currently missing out on their legal right to claim damages through the US courts.
The losses experienced by Northern European pension funds in 2008 have been on such a large scale that only a fraction has so-far been recouped. Whilst some cases are resolved within two years of being filed, many, as effectively demonstrated by the high-profile case against Enron Corp., will take several years before reaching resolution or settlement. A study by Nera Consulting showed that at the end of 2009, over four fifths of filings related to the financial markets crisis were still unresolved. Furthermore, for cases filed in 2008 and 2009, median investor losses rose by two fifths compared to previous years – to over $500 million[1]. Securities class action experienced a surge in Q2 2010, with the annual number of filings set to be more than experienced in 2008, yet fewer than in 2009[2]. However, total settlement amounts in the first half of 2010 fell in comparison to 2009 levels. Once these credit crunch related cases come to resolution, the number and the size of settlements are likely to increase, as quantified by GOAL’s research. Whilst pressure exerted on pension funds by the economic downturn appears to be easing, there is nevertheless a pressing duty of care for institutional investors and fund managers to act now if they are to recoup significant losses suffered at the peak of the financial markets crisis.
The recent abundance of high-profile cases in the UK and throughout Northern Europe has helped raise awareness of the opportunities to claim. In March 2009, Merseyside and North Yorkshire pension funds filed a motion to become lead plaintiffs in a U.S. securities class action against Royal Bank of Scotland (RBS). Similarly, Avon Pension Fund, was granted lead plaintiff status in a case against UK-listed GlaxoSmithKline, Other examples include Lothian Pension Fund and the Northern Ireland Local Government Officer Superannuation Committee (NILGOSC) which were both granted co-lead plaintiff status in August 2008 against Lehman Bros over their mortgage-backed securities.
If investors and fund managers are to recoup a proportion of their losses through class action litigation, either in US or European courts, now is the time to become actively involved in the filing and participation process. However, keeping track of the opportunities to make a claim and the processes required to do so successfully, can be a complicated and daunting task – with many investors mistakenly believing that the cost and time involved will outweigh the benefits. In fact, specialist services are now available to handle the class action participation process, often on a no-win, no-fee basis.
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 $ 900,000 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. “
Stephen Everard, Managing Director, GOAL Group, comments, “Our research shows that aside from employing class actions to fulfil corporate governance responsibilities, there is a growing need for UK pension funds to plug the escalating pensions gap, particularly as a result of losses suffered during the financial markets crisis. As credit crisis borne cases continue to be brought through 2010, filings are likely to give way to Ponzi scheme allegation cases and standard securities actions. Fund managers should therefore be proactively filing and participating in class actions now, if they are to be included in what are likely to be the most sizeable settlements over the next 3 to 5 years, those emerging from the economic crisis.”
Table 1
| Netherlands | UK | France | Ireland | Germany | Total | |
| Lost in U.S Investments | €28 bn | €26 bn | €3.4 bn | €2.4 bn | €485 mn | €60 bn |
| Recoverable amounts | €1.8 bn | €1.7 bn | €216 mn | €156 mn | €31 mn | €3.9 bn |
| Amounts to be left unclaimed | €466 mn | €436 mn | €56 mn | €40 mn | €8 mn | €1 bn |
Methodology
Publicly available data sources on class action settlements were combined with GOAL Group’s own proprietary datasets in order to quantify the levels of loss suffered by Northern European (Netherlands, UK, France, Ireland, Germany) pension funds and in order to forecast how much is likely to be recouped through US securities class actions as a result of losses in 2008.
[1] Nera Economic Consulting, Recent Trends in Securities Class Action Litigation: 2009 Year-End Update, December 2009
[2] Advisen, Quarterly Securities Litigation Report, Q2 2010
