UK - Local authority pension schemes could be losing up to £125m (€136m) by not participating in class actions, a report from the Goal Group has claimed.
The firm, which provides specialist class action services, calculated that between 2007 and 2008 UK local authority pension schemes lost almost £8.5bn on their investments, of which around £140m could be recovered through legal action.
Between 2008 and 2009, however, it revealed the losses by UK local government pension schemes (LGPS) increased to £22.5bn while the potentially recoverable funds from class actions more than doubled to £370m, because the financial crisis is likely to create a “far more sustainable stream of cases, albeit at less inflated settlement values”.
In total, this means LGPS’ lost around £31bn between 2007 and 2009 but have the potential to recover £500m. Goal Group claims, however, that £125m, or 25% of potentially recoverable funds, could be left unclaimed if local authorities do not start to increase their participation in legal actions.
Goal Group quoted statistics from Nera Economic Consulting stating the number of federal class action filings in US courts, the main location for these cases, peaked at 258 in 2008. This was the highest level since 2002, but the report noted the first half of 2009 has already seen 127 cases filed, of which 67% named at least one financial company as the primary or co-defendant.
Tony Doyle, senior investment manager for equities and corporate governance at the £6bn (€6.5bn) West Midlands Pension Fund, said it had been involved in class actions against numerous companies including AT&T Wireless, Cable & Wireless, Federal Home Loan and Royal Ahold NV.
As a result, Doyle confirmed, the West Midlands pension fund had recovered more than $700,000 (€478,834) from the litigation process.
“The fund submits class actions globally where it believes that it has suffered a financial loss through fraudulent or irresponsible corporate behaviour,” he said. “Responsible investing is imperative in a financial downturn, and class action participation is just one element of the fund’s approach to this.”
In addition, Doyle argued funds must proactively ensure they are fulfilling their “fiduciary duty to shareholders” by encouraging honest and responsible behaviour by corporate management.
“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,” he added.
Stephen Everard, managing director of Goal Group, claimed the research also showed a growing need for local authority pension schemes to plug the pensions gap, and suggested if recent cases such as the RBS class action - in which Merseyside and North Yorkshire pension funds are involved - lead to a resolution “it is likely to see the largest settlement ever in the history of US securities litigation”. (See earlier IPE article: US pension funds selected to lead RBS action)
Everard added: “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 ensure their beneficiaries’ interests are properly safeguarded in the future.”
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