Moody’s to Pay CalPERS $130M for 'Negligent' Ratings

The California Public Employees’ Retirement System (CalPERS) has settled its ratings lawsuit against Moody’s for a record $130 million.

The $285 billion public pension fund sued Moody’s and other ratings agencies in 2009 after suffering losses from “AAA” rated investment vehicles. These assets relied on the liquidity of assets which turned out to be illiquid, including subprime mortgage-backed securities, collateralized debt obligations, and other asset-backed securities.

CalPERS had alleged that Moody’s “erroneous” ratings amounted to “negligent misrepresentations” of the investment vehicles.

“This should serve as a cautionary reminder to all investors who rely on rating agencies to guide their investments,” said Matthew Jacobs, CalPERS general counsel.

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CalPERS settled with Standard & Poor’s (S&P) for $125 million early last year, for a total of $255 million from the now-concluded lawsuit. The settlements ranks as the largest known recovery from Moody’s and S&P in a private lawsuit for civil damages.

“This resolves our lawsuit against Moody’s and restores money that belongs to our members and employers,” Jacobs said. “We are eager to put this money back to work to help ensure the long-term sustainability of the fund.”

Four Massachusetts Mutual Life Insurance Company asset management affiliates will combine into one multi-asset investment firm, the managers announced Wednesday.

Babson Capital Management, its subsidiaries Cornerstone Real Estate Advisers and Wood Creek Capital Management, and Baring Asset Management will merge into a single entity under the Barings brand. The combined firm will oversee $260 billion in assets across offices in 20 countries.

“By bringing together these highly complementary world-class affiliates under the iconic and respected Barings brand, MassMutual enhances its already-strong offering,” said MassMutual CEO Roger Crandall in a statement.

Current Barings Chairman and CEO David Brennan is set to retire this summer, before the merger is expected to complete. The firms said they expect to close the initial phase of integration during the fourth quarter of this year.

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“This is an exciting opportunity for the Barings organization to combine with its affiliates to create a new, more diversified global manager,” Brennan said.

Tom Finke, current chairman and CEO of Babson, will oversee the new firm, headquartered in Charlotte, North Carolina. No other changes in investment leadership are anticipated.

A spokesperson for Barings said the merger made sense because there is “little overlap between the businesses.” Currently, Babson manages global fixed income products, Cornerstone focuses on real estate, and Wood Creek specializes in real assets. Barings offers a combination of equities, multi-asset products and fixed income.