Compliance May 18, 2015

Investment Manager Allowed to Sue over Oral Agreement

A California state appellate court found allegations supported an investment manager’s claim that it had entered into an oral agreement with CalPERS.
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Centinela Capital Partners sufficiently alleged that it had an oral agreement with the California Public Employees’ Retirement System (CalPERS) to manage a $100 million investment into the Capital Link III fund, according to the Court of Appeal for the State of California.

The court found Centinela set forth 13 of the material terms of that promise and alleged that the management of the Capital Link III fund is to be governed by the same terms and conditions set forth in the very detailed written contracts applicable to the Capital Link I and Capital Link II funds, which Centinela already managed for CalPERS. “Centinela’s incorporation of the prior written contracts, coupled with its allegation that their terms will apply with equal force to the Capital Link III agreement, provides a basis for evaluating a breach of contract and for fixing damages,” the court said.

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According to the court opinion, in 2006 and 2008, respectively, CalPERS hired Centinela to manage two of its $500 million portfolios—the Capital Link I and Capital Link II funds. Each of these funds was created by a detailed written contract. In 2009, Centinela and CalPERS started discussing the possibility that Centinela might manage a third, $100 million portfolio to be called Capital Link III.

On May 16, 2011, Centinela and CalPERS orally agreed that CalPERS would bypass any competitive bidding process and award Centinela the management of the Capital Link III fund, and another, unspecified larger portfolio in the future. The parties further agreed that CalPERS’s performance was contingent upon Centinela severing its ties with Cesar Baez, one of its three principals, who had some association with persons being investigated by the Attorney General for peddling influence with CalPERS.

In reliance on this oral agreement, Centinela severed its ties with Baez. Then, Centinela learned that CalPERS would not carry through with its oral promise to have Centinela manage the Capital Link III fund. Centinela sued CalPERS for not honoring the alleged oral promise to award Centinela a contract to manage a $100 million investment portfolio for CalPERS.

A lower court found the alleged oral contract was “an agreement to agree” and “lacked specificity.” The appellate court reversed and remanded that decision to the lower court.

A client alert from law firm Reed Smith says the case “provides an important warning to plan fiduciaries and their investment staff: Be careful what you say when discussing investment opportunities with managers, especially those incumbents with whom you already have a contractual relationship. Make it clear in your communications—whether by phone, in person, by email or letter—that nothing will be binding on your plan unless and until a complete set of documents has been approved and inked by both sides.”

Deals and People May 18, 2015

LSEG Launches New FTSE Russell Brand

The creation of the FTSE Russell name represents the launch of a newly combined global index brand, according to the London Stock Exchange Group.
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Combined elements of Russell Investments and the London Stock Exchange Group (LSEG) will operate under a newly established brand, FTSE Russell.

The launch of FTSE Russell is “an important milestone in the integration of FTSE and Russell Indexes,” the firm notes. The announcement follows the 2014 acquisition of the Russell Investment businesses by the London Stock Exchange Group.

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The initial deal was valued at $2.7 billion and took an important turn in February 2015, when LSEG said it reached a decision to sell the investment management portion of Russell Investments, while keeping Russell’s lucrative indexing business, which has now been folded into the FTSE Russell brand.

One retirement industry expert at the time told PLANSPONSOR the shift in ownership of the Russell indexes presents a good opportunity for retirement plan fiduciaries and investors to think a little deeper about how their portfolios are built and measured. Turning to today’s news, LSEG says FTSE Russell “will now operate as one joint global index business, with a combined sales and product team serving its global customer base.”

Mark Makepeace, group director of information services for LSEG, says the firms “continue to make great progress across the business to bring together our collective capabilities to serve clients globally, offering even greater access to our broad range of multi-asset index solutions.” 

FTSE Russell becomes a global index brand that provides benchmarking, analytics and data solutions for investors worldwide. FTSE Russell calculates thousands of indices that measure and benchmark markets and asset classes in more than 80 countries and 25 exchanges worldwide. 

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