State Street’s McLellan, Pennings Depart Amidst Question Over Transition Cost

(October 6, 2011) – State Street Global Markets’ (SSgM) Ross McLellan and Edward Pennings – global head of SSgM’s portfolio solutions group and head of the Europe, Middle East and Africa solutions group, respectively – have left the company effective October 5 following a pension fund’s inquiries into fixed-income trading costs during a transition, multiple sources tell aiCIO. 

When contacted, a State Street representative confirmed that McLellan is no longer with the firm. State Street declined to comment on Pennings’ employment status.

According to sources, costs associated with a recent transition event spurred questions from an unnamed pension fund. Inalytics, a London-based consultant that specializes in assessing manager performance, performed due diligence on the trade, which sources claim was “priced on yield” when the pension believed it was meant to be “priced on cost.”

Depending on the maturity of the fixed-income instruments in question, basis-point-based pricing can have a large impact on eventual fees. For bonds with a maturity of over approximately seven years, the effect can be a “four or five times” cost increase over pricing on cost, according to one industry expert.

In response to a request for comment, the firm stated that “State Street has conducted a review of a transition conducted earlier this year for a UK client. We have concluded that this client should be reimbursed and we have done so. Our review also concluded that in completing this transition, certain employees did not meet the standards we expect of them. We have zero tolerance for this behavior.”

The webpage detailing McLellan’s biographical information was “temporarily unavailable” as of 6:00 PM Eastern Standard Time. According to the Financial Services Authority’s Register, Edward Pennings is listed as “inactive.”