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Regulation

Goldman Sachs Wins Dismissal of Lawsuit Over Billions in Bonuses

Goldman Sachs' board of directors has won the dismissal of a lawsuit seeking to recover billions of dollars of bonus payouts and other compensation awarded for 2009.

(September 27, 2011) — Goldman Sachs has won the dismissal of lawsuits over bonuses, Bloomberg has reported.

New York State Supreme Court Judge Bernard J. Fried dismissed the lawsuit with prejudice in his ruling, which combined cases brought by Illinois’ Central Laborers Pension Fund and an individual plaintiff, Ken Brown. The judge asserted that the allegations failed to provide any basis for the conclusion that the board acted for any purpose other than the advancement of the company’s interests.

In December 2009, Security Police & Fire Professionals of America Retirement Fund sued the investment bank, alleging that directors and executives breached their fiduciary duties by reserving half of the company’s net revenue for employee compensation. The following month, Brown and Central Laborers Pension Fund filed similar suits. The lawsuit stated that the bank’s policy of targeting a payout of close to 50% of net revenue as compensation reflected “scant regard” for shareholder interests.

Goldman’s 2010 annual report showed that it paid out about $16.19 billion in compensation and benefits for 2009, or 35.8% of its net revenue of $45.17 billion, its lowest percentage payout as a public company.

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The case is Central Laborers’ Pension Fund v. Blankfein et al, New York State Supreme Court.

Goldman Sachs is not the only bank to battle scrutiny over compensation from institutional investors. In February of last year, the Security Police and Fire Professionals of America Retirement Fund & Central Laborers’ Pension Fund labeled Morgan Stanley’s payouts as “unjust enrichment, ” accusing the bank of failing to administer its compensation plans in the best interests of the company and its shareholders.

“The payments are staggering not only in absolute and percentage terms, but also when one considers the losses suffered by Morgan Stanley’s shareholders between 2006 and 2009,” according to the complaint.

Including benefits, Morgan Stanley paid its employees nearly $14 billion in 2006. A year later, the firm paid $16.6 billion to its employees (59% of its revenue for that year). In 2009, the firm paid $14.4 billion (62% of net revenue for the year).



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
Home > News > Asset Allocation > Study: Younger, Smaller Hedge Funds Outperform
Asset Allocation

Study: Younger, Smaller Hedge Funds Outperform

A new study by PerTrac examines the impact of size and age on hedge fund returns.

(September 27, 2011) — A new study by industry analytics provider PerTrac shows that smaller hedge funds performed best in 2010, while young funds outperformed their senior counterparts.

The firm’s latest report — Impact of Fund Size and Age on Hedge Fund Performance — showed that funds with under $100 million in assets under management returned 13.04% in 2010, while mid-sized funds ($100 million to $500 million) returned 11.14% and large funds (over $500 million) returned 10.99%.

“The 2010 and first half of 2011 findings continue to suggest that investors seeking to maximize their returns should examine funds with less than $100 million in AUM or funds with less than two years of existence provided they fit their liquidity and allocation profile,” commented PerTrac’s Lisa Corvese, Managing Director of Global Business Strategy, in a release on the findings.

According to PerTrac, until 2008, small funds have consistently beaten mid-size and large funds. However, in 2008 — the only negative year for any of the sized based fund indices — small funds were the worst performers, declining -17.03%. The following year, small funds came in second behind mid-size funds in performance. “But while small funds have generally outperformed mid-size and large funds, their risk profile remains the highest and simulation models suggest this trend could continue, as well,” PerTrac stated.

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The firm indicated an array of potential reasons to explain the success of young funds. Some of these reasons include the ability to make portfolio changes more rapidly, lower fixed costs, and new technologies that enhance efficiency.

PerTrac’s findings compare with an earlier report by Russell investments that showed that global equities managers with fewer staff and funds under management outperformed larger management teams in charge of more capital. The research was gathered from 233 global equities managers that are part of Russell’s Global Equities Universe. According to Peter Gunning, Russell’s global chief investment officer, the findings are consistent with a long-established hypothesis that asset managers with fewer assets perform better than those with larger assets.

The complete hedge fund study by PerTrac is available for free download by clicking here. 



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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