Judge to decide litigation options for pension funds suing Henderson
UK – The 22 pension funds suing Henderson Equity Partners over the management of an ill-fated infrastructure fund came a step closer to bringing their case to trial, following a three-day preliminary hearing at the High Court this week.
The hearing before Judge Jeremy Cooke was to determine how the trial should proceed and whether the pension funds could bring claims against the fund manager, Henderson Equity Partners, as a group, or whether each pension fund must bring a claim individually.
Other issues included whether the claimants’ interpretation of what was authorised by the limited partnership agreement (LPA) and private placement memorandum (PPM) relating to the Henderson PFI Secondary Fund II was correct.
The pension funds, acting under the name of 'Certain Limited Partners', claim the acquisition of PFI firm John Laing in 2006 by Henderson Equity Partners for £1bn (€1.2bn), using the bulk of the £575m fund and leverage, was in breach of mandate and that the allocation of assets and liabilities to the fund unauthorised.
The claimants further argue that the acquisition exposed them unexpectedly to John Laing's liabilities, such as its PFI bidding business and non-PFI businesses such as Chiltern Railways (which has since been sold), and the company's burgeoning defined benefit pension deficit.
They also allege that the bids for John Laing were made without notice, that it was not a "permitted investment" and that there was "no mechanism for the body of investors to be informed of the bid in advance, or to consent to it, and their consent was not sought".
The defendants allege that the investors knew that the purpose of the fundraising for the Henderson PFI Secondary Fund II was to carry out a single acquisition of a company, which owned some non-PFI assets, and that the manager of the fund could not disclose the identity of the target acquisition company as it was a listed entity.
Robin Dicker, QC for the defendants, queried why the claimants had not sought to replace the manager shortly after the acquisition of John Laing, in September 2006, if they were unhappy with the purchase.
Iain Milligan, QC for the claimants, said the replacement of the general partner was not a prerequisite of the derivative claim.
He also asked the judge how pre-emptive costs should be ranked, but Judge Cooke said there were sufficient assets in the fund to cover costs so that ranking was not an issue.
Judge Cooke said he would decide on the issues raised at the hearing before Christmas.
Lawyers for the pension funds were Ashurst and for Henderson Equity Partners, Clifford Chance.
If the case goes to a full trial, it is not expected to be heard before 2014.
A spokesman at Henderson said: "The proceedings do not quantify the sums claimed and will be defended vigorously. We do not consider that it is appropriate to comment further at this stage."
The 22 pension funds include some of the largest pension schemes in the UK, such as Railpen and British Steel.
Other pension funds party to the litigation include BBC, BAE, Bupa, B&CE, Tesco, Smurfit Kappa, Nestle, NM Rothschild, Fenner, Magnox, Southern Electric, Kent County Council and South Tyneside, as well as Oxford Investment Partners and Trinity College Cambridge endowment funds.
They represent nearly 90% by value of the fund's investors.
In 2005, the Henderson PFI Secondary Fund II raised £575m from investors, most of which was used to acquire John Laing.
The aim was to gain access to John Laing's private finance initiative projects, building and maintaining schools and hospitals to provide the type of steady, inflation-proofed income defined benefit pension funds crave.
By June 2009, the value of the fund had fallen 60% to £225m, due to higher borrowing costs following the financial crisis and John Laing's spiralling pension scheme deficit.