Deals and People September 8, 2014

Mercer Investments Adds Four Senior Hires

September 8, 2014 (PLANSPONSOR.com) – Mercer Investments is adding four senior investment professionals to its staff to provide additional client support across the firm’s North America regions.
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Rich Nuzum, head of Mercer Investments in North America, says the firm is building additional delivery capacity ahead of anticipated growth in its investment consulting and fiduciary management business. New hires include:

  • Neeraj Baxi, previously a director with Primus Investment Management and a principal with EnnisKnupp, is joining Mercer as a senior investment consultant in New York. He holds a bachelor’s degree in commerce from Sydenham College of Commerce and Economics in Mumbai, India, and an M.B.A. from the Indian Institute of Management in Bangalore, India. He also holds a chartered financial analyst (CFA) designation and a master’s of science degree in financial markets from the Illinois Institute of Technology.
  • Brett Horton, previously a director with Duff & Phelps, has joined Mercer as a senior consultant and principal to help enhance investment manager operational risk assessment services. He has more than 25 years of experience focusing on operational risk, due diligence and the detection of operational fraud and embezzlement. Horton’s undergraduate concentration was in economics at Brigham Young University.
  • Chris Kohler, most recently with Entrust and previously with Hewitt EnnisKnupp, has joined Mercer Investments as a senior consultant supporting the firm’s endowments and foundations business. Kohler received a bachelor’s of science degree from Pennsylvania State University and an M.B.A. from Carnegie Mellon University’s Tepper School of Business.
  • Greg Korte, previously founder and Principal of Korte & Associates Consulting, LLC, a specialist custody and investment operations consulting firm, has joined as a senior consultant and head of Mercer’s custody consulting business in North America. Korte has 30 years of experience in the investments service industry. He received a bachelor’s of science degree from Franklin University, concentrating on finance and management.
Administration September 8, 2014

Pension Fund Sues Banks for Rate-Rigging

September 8, 2014 (PLANSPONSOR.com) - The Alaska Electrical Pension Fund has accused 13 banks of manipulating an interest rate benchmark used to price certain derivatives instruments.
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The complaint accuses the banks and defendant ICAP of entering into a secret conspiracy to fix the ISDAfix rate at artificial levels. The lawsuit explains that the ISDAfix is a key interest rate for a broad range of interest rate derivatives and other financial instruments. For USD swap rates, ISDAfix was administered by ICAP and was based on the submissions of the defendant banks.

The suit seeks class action status and alleges that throughout the class period, the banks and ICAP entered into a “secret conspiracy” to fix the ISDAfix rate at artificial levels. “In particular, the Defendant Banks entered into an overarching agreement that, when any subset of banks faced particular exposure to the settlement of an ISDAfix-linked transaction on a certain day, the other banks and ICAP would help manipulate USD ISDAfix rates to a level that would help that subset of banks (while hurting their customers),” the complaint says. According to the lawsuit, the banks communicated with each other through electronic chat rooms and other forms of private communication to determine when it was time to manipulate ISDAfix and how it should be manipulated.

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The suit says the banks and ICAP did this in at least three ways: the banks conspired to manipulate the fixed swap rate just before the period during which ISDAfix was set by executing a series of rapid-fire transactions through ICAP and submitting executable bids and offers to ICAP—so-called “banging the close”—to push the rates to a particular level; on numerous occasions throughout the class period, ICAP would agree with the banks that it would delay the reporting of actual swap rates until after the conclusion of the ISDAfix setting process; and there were occasions when certain of the banks simply secured ICAP’s agreement in advance to post a reference rate to other ISDAfix contributors that was not truly reflective of actual trades in the marketplace.

The lawsuit says since at least 2009 (and likely before), the banks regularly submitted the same or virtually the same USD ISDAfix rate quotes on almost every single day, down to five decimal points, resulting in the official ISDAfix rate and the individual banks’ contributions being identical to the ICAP reference rate 95% of the time for at least four years—the odds of which are “astronomical.” The lawsuit alleges this “obvious coordination” only stopped when the banks learned their benchmark-setting efforts were under investigation.

The pension fund is seeking to represent all investors that took part in interest rate derivative transactions tied to ISDAfix from January 2006 to January 2014. It’s seeking unspecified damages.

Derivatives allow pension plans to reduce risk by keeping portfolio allocations balanced (see “Overlay Strategy Keeps DB Investments on Target”). Reforms for trading certain derivatives instruments were passed following the financial crisis of 2008/2009.

The complaint filed in Alaska Electrical Pension Fund v. Bank of America Corporation, et. al. is here.

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