EUROPE – Goldman Sachs Asset Management has rejected "mischievous and wholly unfounded" allegations that it acted negligently while serving as the fiduciary manager for the Dutch transport pension fund Vervoer – arguing that the fund's complaints came with "the benefit of perfect hindsight".
The asset manager was responding to a lawsuit and claim for €250m in damages filed at the UK High Court by the €11bn pension fund last summer.
In the 53-page defence – prepared by Goldman Sachs Asset Management International's (GSAMI) solicitors Linklaters late last year and filed with the Commercial Court – the manager argues that Vervoer's "spurious" claims used hindsight to "distort the context in which the parties were operating" and denies the fund was entitled to damages.
In the initial claim, the Dutch fund says its fiduciary manager invested €349m in a portable alpha structure overseen by Grantham, Mayo, Van Otterloo & Co (GMO) that was "wholly unsuitable" for its stated investment target, due to its summer 2007 exposure to mortgage-backed securities, which were highly rated at the time.
Vervoer claims the disputed investment had been "riskier" than it wished, partially due to commitments to two hedge funds.
In the response obtained by IPE, Goldman argues that GMO was not an unsuitable manager.
It also claims that Vervoer's insistence that the fiduciary manager should have withdrawn from the long duration euro government bond (EGB) product when returns were "poor" was driven by hindsight and ignored the "impracticality of withdrawal and the costs and losses that would have arisen".
"The claimants' claim," Goldman adds, "is in any event fundamentally flawed in that it ignores the fact Vervoer's requirement was for an investment in a product that would produce a return benchmarked to EGB plus an active management return."
GSAMI further denies that it was in breach of contract or its duty, or that Vervoer, alongside co-claimants Stichting Bewaar Beroepsvervoer and Stichting Beheer Beroepsvervoer, were entitled "to the relief claimed or to any relief".
The fiduciary manager further points to the fact that investing was "expressly delegated" only to third-party asset managers.
Addressing the second area of contention – Vervoer's claim that Goldman did not act fast enough when appointing and seeding global high-yield (GHY) managers and misled the fund about the timescale following a December 2008 decision to invest – the manager counters that increased speed would have been "unrealistic in light of the characteristics of the GHY market".
"The suggestion that GSAMI misled the claimants as to the time it would take to appoint new asset managers is wrong," it says.
"In any event, the claim that the FGR [pooled fund vehicle] participants would have sought and been able to obtain exposure to the GHY market during the transition process had they known that it would take as long as it did is inconsistent with the advice that the FGR received at the time from the transition manager," it says, referencing BlackRock's involvement.
It also seeks to counter claims that its allocation of capital to existing GHY manager Oaktree Capital was "sporadic or ad hoc" by demonstrating the month-on-month increases to the mandate size between the end of April and the end of August 2009.
The defence further argues that the protracted timescale of seeding the GHY mandates should have been "obvious" to Vervoer.
It points out that the pension fund could have opted for alternative or synthetic exposure to the market had it been concerned about speed at the time, "but apparently chose not to do so".
Goldman adds that if Vervoer had wanted GHY exposure during the transitory period of the investment, it should have discussed this with BlackRock.
Goldman highlights that repeated revisions of Vervoer's strategic asset allocation resulted in a €700m increase of its allocation to GHY over the course of 2009 and that the fund was kept apprised of the fiduciary manager's progress in appointing new managers following the December 2008 decision.
The manager says a meeting in late March 2009 informed Vervoer of T Rowe Price and Shenkman Capital Management's selection, and that, "due to the nature of the asset class and capacity concerns, it was anticipated that funding of those managers (and Oaktree) would take 2-3 months" from their appointment.
It says it denied that the decision to provide T Rowe with phased funding over an 11-week period rather than an eight-week timeframe was a "failure to act".
Addressing one of the transport fund's main grievances – namely that it failed to maintain an "adequate 'platform' of funding GHY managers in which GSAMI had sufficient confidence", the fiduciary manager says the argument was "incoherent" and denies the allegation.
It notes that the number of funded GHY managers was out of its control, as it depended on the wishes of its clients.
"It is denied that, even if GSAMI had already conducted analysis of further GHY asset managers prior to December 2008 such that they were on its 'bench', the appointment of the required GHY asset managers and/or their funding could have been completed by early March 2009," it says.
Meanwhile, in Vervoer's original claim, it argues that Goldman pursued a strategy that was in conflict with an alleged broader strategy to short sell mortgage-backed securities, constituting a conflict of interest.
In its defence, Goldman says it was neither consistently nor significantly net short the market for residential mortgage-related products in 2007.
Vervoer subsequently acknowledged that Goldman had no such conflict of interest and dropped this part of its claim.
