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How Investors Are Leaving Billions on the Table

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This article is sponsored by Goal Group.

Written by Noah Wortman

Noah Wortman

Noah Wortman

The degree to which fund managers and custodians have a fiduciary responsibility to ensure that their clients have the opportunity to participate in securities class and collective redress actions is a hotly debated subject.

Securities class actions have been moving away from the relatively straightforward focus on a single judiciary – the US – to a multiple and complex series of legal systems throughout the world. This trend for global class actions has been induced largely by the 2010 US Supreme Court decision in Morrison v. National Australia Bank Ltd. The case limited the ability of non-US based investors in bringing securities class action claims within the US, and in some instances, US investors from bringing cases against non-US listed companies within the US. Since this ruling, investors are instead instigating class and collective redress actions in alternative and sometimes more flexible jurisdictions across the globe.

As a result, international companies listed on multiple exchanges are now defending themselves against securities class actions across multiple jurisdictions, in a climate of tightened regulations and fierce enforcement measures for governance standards.

Goal Group’s analysis shows that just under 24% of possible claims are still not being filed by eligible investors.

Fiduciary responsibility

Institutional investors, mutual fund companies, investment firms, brokerage firms (including investment advisors and their retail clients), hedge funds, custodians, trustees, endowments and foundations have contractual relationships with their clients. It can be argued that there is a moral duty of care to disclose to clients notice of class action settlement information and to determine their eligibility per the appropriate legal standard on a case-by-case basis.

It is likely that the sheer volume, and international variety, of tracking and participation will continue to rise throughout the next decade. As a result, it is important for institutional investors to have a regime in place to make sure they are monitoring and managing securities class actions and potential legal redress options across the world.

Keeping track of the opportunities to participate and the actions required to do so successfully can appear to be a complicated and daunting task – especially when class actions are spread across the globe and can vary in procedure and construction from country to country. However, this doesn’t have to be the case, and neither does participation require jumping straight into being an active litigant.

Participation can be successfully achieved by methodically monitoring, understanding and evaluating securities class and collective redress actions on a global scale. The following three-stage process provides a potential model.

The three-stage process

1. Monitoring and understanding
The first step towards more active participation is to regularly monitor securities class and collective redress actions pending around the world. Goal Group’s internal analysis shows that the typical European share portfolio is international, with the average weighting currently 60% in domestic shares and 40% in foreign shares. These weightings have been driving European shareholders’ awareness of the need to monitor securities class action lawsuits and collective redress actions filed across different jurisdictions and the various legislatures across the globe, as well as the development of mechanisms that promote investor protection.

Understanding the different jurisdictions and claims processes is key. Most jurisdictions outside the US require participants in a class or collective redress action to opt-in at the start of a case. Therefore, it is imperative that claims are lodged as soon as possible in order to secure rightful returns, especially as it can take five years or longer from case inception through to settlement and ultimate distribution of funds.

2. Evaluation
Investors should review and evaluate relevant securities in their portfolios that may have been exposed to corporate malfeasance and have been damaged as a result. This overall evaluation includes understanding the exposure and situation to the alleged wrongdoing and understanding the rights and options for getting involved.

3. Participation choice
Evaluation leads to making the choice between either passive participation in a class action – only submitting settlement claims in the first instance – and more active participation in seeking legal redress via participation in a class, collective or individual action, such as being a plaintiff/claimant in a case. It is worth noting that one course of action does not rule out the other: an investor could choose to participate passively before then moving towards active involvement.

US$ 2.02 billion of investors’ rightful returns will be ‘left on the table’ unclaimed each year by 2020.

Embracing cross-border opportunities

The process involved to participate in class actions can nevertheless be a complicated task that requires a great deal of time. As a result, custodians, trustees and fund managers have sometimes regarded the effort (and cost) to participate as disproportionate to the likely settlement payouts or recovery.

This is no longer the case, with a number of service providers automating the process of class action participation across a number of jurisdictions. On the other hand, despite the availability of such services, a number of investors are still not ensuring client participation in the non-US class actions, and there even remains a level of non-participation by eligible parties in US cases. Goal Group’s analysis shows that just under 24% of possible claims are still not being filed by eligible investors.

Moreover, it is predicted that global class action growth will mirror the growth of the US class action scene in the early part of the 21st century, with Goal Group research predicting that settlements in securities class actions outside the US will rise to US$ 8.3 billion per year by 2020. If these non- participation rates seen in the US are experienced in non-US activity, US$ 2.02 billion of investors’ rightful returns will be ‘left on the table’ unclaimed each year by 2020.

It is very much in the interests of investors and fiduciaries to claim back their rightful returns through securities class actions and other potential means of legal redress. Indeed, it could be argued that it is an integral part of fulfilling their duty to deliver value by promoting and safeguarding the interests of beneficiaries or clients over an appropriate time horizon. This extends to protecting the assets in their schemes, as well as demonstrating business integrity, financial transparency and strong corporate governance. Regardless of whether investors participate in class actions in an active role as a plaintiff/claimant, or in a passive role by joining an existing action, all investors should remain vigilant and monitor international opportunities to participate in actions to reclaim rightful returns.

In short, as the globalization of securities class actions in its various forms continue, all parties should acknowledge and embrace these cross-border opportunities in international jurisdictions and recover rightful earnings wherever possible.


About Goal Group
Goal Group is the world’s leading class actions and tax reclamation services specialist. With headquarters in London and offices in Philadelphia, New York, San Francisco, Melbourne and Hong Kong, Goal Group monitors client assets with a total value in excess of £8 trillion. It has a truly blue-chip client base including many of the world’s largest global custodians, asset managers, private banks, pension funds, local government authorities, hedge funds, investment banks, prime brokers, and fund managers spread widely across the Americas, EMEA and Asia Pacific.

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The Slings and Arrows of Passive Fortune

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This article is sponsored by S&P DJI.

If a tale were to be written regaling us with the popular exploits of the modern day active manager in his quest for alpha across the many peaks and valleys of the financial world, passive investment would likely feature prominently in the telling. Passively managed assets have grown tremendously since their introduction in the 1970s to command some 20% of the U.S. stock’s market total-float adjusted capitalization, drawing a deluge of criticism in recent years from proponents of a more traditional, active approach who charge indexers with all manner of supposed ills – from encouraging collusive behavior and exacerbating pricing inefficiencies, to indifference on matters of corporate governance.

But are passive assets and their purveyors really the threat to markets that active management makes them out to be? Or are the problems attributed to their rise merely a reflection of the market forces all participants must face? These are the questions posed by Anu Ganti and Craig Lazzara at S&P Dow Jones Indices (S&P DJI) in their new paper, titled “The Slings and Arrows of Passive Fortune,” which seeks to unravel some of the most pervasive myths surrounding the growing role of index funds, highlight the immense value they bring to asset owners, and posits a future of asymmetric equilibrium between the old and the new that puts each in their proper place based on relative – rather than absolute – performance.

Nobody – including the paper’s authors – denies that index-based investment has made life more challenging for active managers, who count alpha as their very lifeblood; but so too would it be foolish to argue its advancement as one of the most important developments in modern financial history is without merit, or somehow Thucydidean in nature. If anything, active management can and should expect its portion of the pie (which, it must be pointed out, constitutes the majority of assets by a wide margin) to remain subject to nibbles from their passive counterparts – nibbles that may, with time, diminish. The market always has room for more players at the table, after all, and we all play by its rules.

As Director and Managing Director of index investment strategy team at S&P DJI, Ganti and Lazzara provide research and commentary on the firm’s entire product set – covering U.S. and global equities, commodities, fixed income, and economic indices. Both are chartered financial analysts and regular contributors to Indexology, S&P DJI’s appropriately named blog covering developments in the world of indexing.

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Battea: 2017 Securities Class Action Industry Lookback and Observations

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This article is sponsored by Battea.

Source: Battea

There has been incredible growth in securities and antitrust class action litigations and settlements, particularly as they have unfolded in 2016 and 2017. The number of new cases and settlements from traditional securities litigation to antitrust rate rigging, spread inflation and other forms of collusion are at an all time high and shows no signs of slowing down.

With several multi-billion dollar litigations related to Libor, Euribor and Tibor rates, and spread manipulations, the securities, foreign exchange and antitrust class and collective actions litigation space rose exponentially in 2017.

View Whitepaper Here

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The Future of Operations: Simplify, Innovate and Transform

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This article is sponsored by Broadridge.

Now that the pain of the global financial crisis and subsequent regulations are starting to fade from view, the asset management industry is facing new challenges that will transform the business. Firms must be nimble enough to support this evolution. That means not only redesigning operations, but also adopting new technologies that can be used for innovation in-house and with the help of partners.

In active management, the industry has created more complex products to generate alpha, while the growth of passive management, spurred by fintech competition, is compressing fees. At the same time, expansion into new markets has added costs. Facing these challenges will require serious improvements to back- and middle-office operations — an overhaul of everything from data validation to trade reconciliation.

For this type of transformation, experts say, it’s not enough to improve the steps in a process. Financial institutions need to eliminate steps. Specifically, executive members of the Asset Management Group of the Securities Industry and Financial Markets Association (SIFMA) say that leading firms should:

Work collaboratively. Firms should collaborate to solve common problems; use associations to identify and promote best practices; and partner with service providers, utilities and regulators to tap their specialized skills and mutualize non-differentiating functions.

Tackle common pain points. Many of the industry’s biggest challenges come from a lack of standardized processes: Standardizing data is the top challenge and sets a foundation to accelerate change.

Leverage transformational technology. Cloud computing, artificial intelligence, and distributed ledger technology can be transformational over the coming three, five or 10 years — but investing now is vital.

Assess, accept and mitigate risks. During times of large transformational change, it should be understood that risks are higher. This traditionally risk-adverse industry must balance the need for bold change against the fear of producing subpar outcomes.

This paper asks how asset managers can move beyond incremental improvements, like shaving costs from processes like post-trade settlement, regulatory compliance and reconciliation, to reimagining how operations are handled. Based on discussions with executives from leading asset management, buy-side, and sell-side firms, as well as service providers, it assesses the drivers for change and the challenges and opportunities ahead, and discusses what actions the industry must take to reach its desired future state.

The long-term vision of how asset management operations should change is best summed up by one word: Simplify.

To learn more about “The Future of Operations” for the asset management industry, download the white paper from Broadridge and the SIFMA Asset Management Group.

To learn more about Broadridge’s solutions for the asset management industry, please visit www.broadridge.com/financial-services/asset-management/

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