Northern Trust Faces Securities Lending Lawsuit

The Chicago Public School Teachers’ Pension & Retirement Fund (CTPF) and the City of Atlanta Firefighters' Pension Plan filed the lawsuit over securities lending losses.

(February 3, 2010) — Northern Trust Co. has been sued by the $9.2 billion Chicago Public School Teachers’ Pension & Retirement Fund (CTPF) and the $363 million City of Atlanta Firefighters’ Pension Plan.

The suit, filed January 29 in U.S. District Court in Chicago, accuses Northern Trust of “breaches of contract and fiduciary duty” in managing assets for the funds related to securities lending. The funds claim their assets were improperly placed in risky securities that plunged in value. But, according to Northern Trust, the suit aims to assign blame for the global economic events of 2007 to early 2009.

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The suit also names Northern Trust Investments N.A. and seeks class-action status.

The 43-page complaint said that instead of investing securities-lending collateral pools for the Chicago and Atlanta funds “in conservative, highly liquid, ultra-short-term investment funds” Northern Trust, “in flagrant violation of its duties, instead locked those funds into risky, long-term investments – including hundreds of millions of dollars of unregistered, illiquid securities that plummeted in value.”

Without specifying the amount of the loss, Chicago fund representatives stated in a media release that “while the loss sustained by Northern Trust is small compared to the $9.2 billion value of our portfolio, CTPF trustees, with the assistance of legal counsel, determined that litigation was in the best interest of our pensioners and members.”

Since the credit crisis, several other custodians have dealt with lawsuits over their securities lending programs. Northern Trust was sued over its cash collateral reinvestment program in September 2008 by the University of Washington. Since then, several other pension funds have sued financial institutions over lack of disclosure and harming shareholders.

Study: Global Pension Assets Up 15% in 2009

Asset values increased to more than $23 trillion during 2009; bond allocation fell as equity markets rose.

(February 2, 2010) — While global pension fund assets recovered in 2009, they are still below 2007 levels, according to a new study from Towers Watson.

In the 13 major markets, global institutional fund assets increased 15% last year to more than $23 trillion, compared to a 21% fall in asset values in 2008.

“The global financial crisis was a huge wake-up call and problems of poor systemic design in the industry point to increased likelihoods of further periods of financial distress in future,” said Carl Hess, global director of investment at Towers Watson. “I fear that without exceptional leadership we will have another tough decade in the pension and investment world.”

According to the study, even though pension funds are beginning to recover from 2008 losses, issues that emerged during the financial crisis still remain: liquidity, solvency, risk management, asset manager underperformance and new challenges in strategic asset allocation.

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As of December 31, the average pension fund in the seven largest markets – U.S., Japan, U.K., Canada, Netherlands, Australia and Switzerland – allotted 54.4% to equities, up from 48% in 2008, with the UK, United States, Australia and Canada investing above this average level. On the other hand, British pension funds have cut their exposure to equities to 60% in 2009 from 77% in 1999. Pension schemes invested 26.9% in bonds, 17.4% in alternatives and 1.3% in cash, Pensions & Investments reported. Japan appeared to have the most conservative portfolio with a 56% allocation to bonds, closely followed by the Netherlands with 48% and 36% in Swiss pensions.

The research found pension assets amount to 70% of the average global GDP, compared with 76% a decade earlier and 58% in 2008.



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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