Pensions File $6.5 Billion Lawsuit Against Sino-Forest

Two pension funds invested in Sino-Forest, the Chinese forestry company battling allegations of fraud, have filed a claim against the firm's management, directors, auditors, and advisers, seeking $6.5 billion in damages.

(September 1, 2011) — Two pension funds have filed a $6.5 billion class-action lawsuit against timber company Sino-Forest Corp, along with its head executives and auditor Ernst & Young.

The suit was filed by trustees of the Labourers’ Pension Fund of Central and Eastern Canada and the trustees of the International Union of Operating Engineers Local 793 Pension Plan for Operating Engineers in Ontario. Both schemes purchased shares in Sino-Forest from March 19, 2007, to June 2, 2011, the period covered by the lawsuit, when the forestry firm raised more than $2.7 billion in the capital markets. During this period, the underwriters and auditors also earned large fees for their services, the suit explained.

The suit alleged that the officers and directors of Sino-Forest misrepresented financial statements, backdated stock options, and overstated forest holdings in China and elsewhere, Bloomberg reported. Additionally, it claimed that former Ernst & Young partners and employees were among directors and management at Sino-Forest, and that Ernst & Young’s “independence was impaired by the significant non-audit fees it was paid” from Sino-Forest from 2008 to 2010, totaling nearly $3 million.

“Since 2003, Sino-Forest has raised approximately $2.986 billion from public investment and/or debt securities issues, including four public offerings between 2004 and 2009, which approximately raised $1.05 billion,” the complaint says.

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Trading in Sino-Forest, which had previously been accused of overstating its timberland holdings and production, was halted last week by Canadian regulators, who claimed that the firm’s officers and directors committed acts they “know or reasonably ought to know perpetuate a fraud.”

Sino-Forest has also been a top holding for John Paulson–founder and president of New York-based hedge fund Paulson & Co. In July, the Advantage Plus Fund, Paulson’s flagship, reported that it lost 11% in June as a result of huge losses with Sino-Forest. The firm dropped about 73% from its closing price on June 1. Paulson & Co. subsequently sold the entire stake in Sino-Forest as of June 17.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Survey: Institutional Investors Flock to Private Equity, Demand More Transparency

A new report by SEI and Greenwich Associates shows that institutional investors, fund managers, and consultants plan to increase their private equity allocations or recommend increases to their clients over the next year, but they are urging greater transparency in the asset class.

(September 1, 2011) — A new report suggests that while institutional investors, fund managers, and consultants are increasing their allocations to private equity or recommend increases to their clients over the next 12 months, they are calling for heightened transparency, reporting, and risk management from providers.

The survey from SEI and Greenwich Associates, titled “The Logic of Fund Flows,” found that 26% of investors plan to increase their private equity mandates in the next year. However, investors and consultants differed on their investment objectives regarding private equity. Approximately two-thirds of investors (68%) pointed to return potential as their primary objective as opposed to 10% of consultants. Fifty percent of consultants, meanwhile, said diversification was their primary investment objective as opposed to only 18% of investors.

“As investors are looking to achieve higher returns in an increasingly challenging return environment, private equity is coming back, but standards are higher across the board,” said Greenwich Associates Managing Director Rodger Smith.

SEI’s Phil Masterson added: “This survey confirms what we’re hearing from our clients–investors are demanding more from managers across asset classes.”

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Commenting on the survey findings suggesting that the criteria for evaluating managers have become more demanding, SEI’s Ross Ellis said: “Managers have reason to be encouraged by investors’ renewed enthusiasm for private equity; however, in exchange, more is expected of them. Managers are facing greater performance pressure, greater fee pressure, and greater transparency expectations.”

Meanwhile, the survey showed the secondary market for private equity was “thriving as investors are buying or selling to meet liquidity demands or pick up deals at deeply discounted prices.”

The survey of 411 institutional investors, consultants and fund managers, conducted in April and May, is the first of a three-part series of survey reports on private equity. The following report is scheduled to be released in early October, followed by another one in early November.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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