EUROPE - Dutch transport pension fund Vervoer has accused Goldman Sachs Asset Management (GSAM) of multiple breaches of contract when the asset manager served as its fiduciary manager in 2006, according to two claims filed recently with the UK High Court.
The 50-page document, filed with the Commercial Court, provide further details on a number of the pension fund's grievances with the asset manager.
GSAM has dismissed the claims, saying they were "brought with the benefit of hindsight" and involved investments that had been made in "extremely difficult and unpredictable markets".
The claimants - Stichting Bedrijfstakpensioenfonds Voor het Beroepsvervoer Over de Weg, Stichting Bewaar Beroepsvervoer and Stichting Beheer Beroepsvervoer - last month filed a €250m lawsuit regarding GSAM's oversight of an alpha LIBOR investment vehicle and Vervoer's global high-yield bond portfolio.
In the first claim, Vervoer contends that GSAM caused €349m to be invested in a portable alpha structure managed by US-based Grantham, Mayo, Van Otterloo & Co.
Vervoer says the portable alpha structure "wholly unsuitable" for its stated aim of achieving a "modest return" above that of an investment in European government bonds.
GSAM, which is still preparing its defence, maintains that the manager selections were appropriate and in accordance with the mandate's specific requirements.
But Vervoer argues that the 'cash-management fund' component of the portable alpha structure, whose "purported purpose" had been to generate returns similar to the interest on cash, had in fact been highly illiquid and "substantially invested" in mortgage-backed and other asset-backed securities.
It also points out that the portable alpha structure comprised investment in two hedge funds, which were themselves invested in the same 'cash-management fund', thereby "increasing and concentrating unsuitable exposure".
"Such an investment," it adds in its claims, "gave rise to a number of plain risks, which were exacerbated by the sub-prime crisis, which was already underway."
Vervoer claims GSAM made the investment without due care and failed to recognise the portable alpha structure's alleged unsuitability, or act in any way to mitigate the impact of the sub-prime crisis.
"Indeed," it says, "as this crisis deepened, the structure's asset manager even increased Vervoer's exposure … without GSAM having sought in any way to prevent this."
Lastly, it points out that GSAM "eventually" decided in October 2008 to withdraw the scheme's investments in the fund, but took more than two years to complete that liquidation, in December 2010.
For its part, GSAM pointed out that it had been appointed by Vervoer to select a pool of assets only in accordance with the pension fund's overall strategic asset allocation.
"We were not responsible for determining the overall strategic asset allocation of Vervoer's portfolio, which was exclusively their responsibility," it said.
"Nor were we responsible for selecting specific investments, which external asset managers did."
The asset manager also argued that Vervoer's sub-prime exposure had been at the discretion of Grantham, Mayo, Van Otterloo & Co, which operated the investment funds.
"GSAM pointed out that the external manager selection was appropriate and in accordance with the mandate's specific requirements and that it had no influence or involvement with GMO's trading decisions," it said.
In Vervoer's second claim, the pension fund argues that GSAM negligently failed to increase its allocation to global high-yield bonds.
It says it instructed the asset manager to increase its allocation from November 2008, but that no new investment was made until mid-April 2009, with funding thereafter being "unnecessarily protracted", and "substantial" investments continuing to be made until as late as October 2009.
Vervoer also claims that GSAM "held itself out" as a fiduciary manager that could implement asset allocation changes quickly and efficiently. As evidence of this, the company allegedly cited a comprehensive system for identifying managers (in advance) that would be able to accept new funds, as well as a "bench" of back-up managers.
Vervoer contends that GSAM did not, in fact, maintain any such bench, and that the company repeatedly gave the pension fund and its transition manager BlackRock "highly misleading" reports on its actual and expected progress in appointing global high-yield managers.
It says GSAM "repeatedly suggested that such appointments and funding were shortly anticipated, whereas in fact there existed little or no prospect of this occurring."
GSAM, however, pointed out that the high-yield market had become extremely illiquid at the time and argued that it was impossible to invest the sums Vervoer had allocated as quickly as the scheme wanted.
"Time was required to engage with, and fully assess, the suitability of potential external asset managers, even more so in the market environment at the time," it said.
"This is standard practice when recommending high-yield strategies."
GSAM has said repeatedly that it acted prudently and complied with its mandate, and that the claims are without merit.
Its defence is expected to be filed with the UK High Court in the coming weeks.