California Pensions to Recover $320M from S&P

The California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS) are set to recoup more than $320 million from credit rating agency Standard & Poor’s and its parent company McGraw Hill Financial.

The settlements relate to S&P’s rating of mortgage-backed securities and other investments between 2004 and 2007. CalPERS stands to receive $301 million, and CalSTRS $23 million.

“This money belongs to our members and will be put back to work to ensure their long-term retirement security.” —Anne Stausboll, CalPERSUS Attorney General Eric Holder and California Attorney General Kamala Harris announced yesterday the settlement of a lawsuit against S&P and McGraw-Hill filed by the US Department of Justice (DoJ) and 20 state attorneys, which awarded $176 million to CalPERS.

The pension also recouped $125 million from the settlement of a separate suit. This was filed separately by CalPERS in relation to losses sustained from three structured investment vehicles rated by S&P.

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“This money belongs to our members and will be put back to work to ensure their long-term retirement security,” said Anne Stausboll, CalPERS CEO.

In total, McGraw Hill and S&P are to pay nearly $1.4 billion to settle all lawsuits. The DoJ will receive $687.5 million and an equal amount is to be split between the entities represented by the state attorneys.

A statement from McGraw Hill Financial said the settlement “contains no findings of violations of law by the company” or S&P.

“The settlement contains no findings of violations of law by McGraw Hill or S&P.” —McGraw Hill Financial statementCalPERS has so far recouped $900 million from similar settlements relating to losses incurred during the financial crisis. CalSTRS declined to comment further than confirming the amount received.

The settlement comes two weeks after S&P paid more than $77 million to settle charges filed by the Securities and Exchange Commission relating to the rating of mortgage bonds.

It is the latest in a long line of lawsuits filed by pensions and other major investors relating to losses incurred during the financial crisis. Most recently, JP Morgan offered investors $500 million to settle claim regarding losses from mortgage-backed securities sold by Bear Stearns.

Sovereign wealth funds from Libya and Abu Dhabi are seeking to reclaim losses from investment banks. Since late 2011, Dutch pension giant ABP has filed claims against JP Morgan,Credit Suisse, and Goldman Sachs, and has settled with a unit of Deutsche Bank, all relating to investments in mortgage-backed securities.

Bank of America has taken the biggest hit, having paid $17 billion to the DoJ and homeowners last year relating to its use of residential mortgage-backed securities. It also paid $2.43 billion to investors including 11 public pensions relating to its takeover of Merrill Lynch in 2009.

Guggenheim Partners has announced a management group has bought out its multi-strategy hedge fund, spinning it out into a new firm named Deimos Asset Management.

According to the New York-based firm, the buyout group included Mark Standish, the former co-CEO of Royal Bank of Canada’s capital markets group. He will join Loren Katzovitz and Patrick Hughes, managing partners of Guggenheim Global Trading (GGT), the firm’s alternative investment management business.

Deimos will also retain GGT’s current senior management team including CFO Michael Carrieri, Chief Compliance Officer Thomas Wynn, and Chief Risk Officer Jules Buxbaum, Guggenheim said.

The new firm will begin operations “on or about February 1, 2015” at its Purchase, New York office, according to its SEC filings in January. Guggenheim did not disclose the terms of the transaction, but said Los Angeles-based Ares Management will invest in Deimos.

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Launched in 2011, GGT managed more than $600 million in assets, according to the firm’s website, which has been shut down since the announcement of the sale.

The hedge fund invested mainly in equities, but also used various strategies including merger arbitrage, fundamental equity research, and quantitative analysis across sectors.

According to CNBC, GGT’s main multi-strategy fund fell 5% in 2014 through November. The company’s overall performance also lagged behind benchmarks since 2012 and had failed to meet its goals of raising $2 billion.

The news organization also reported that Guggenheim had fired at least eight senior executives from GGT largely due to performance.