Henderson Group is being sued by a group of 23 UK pension schemes and other institutional investors after the collapse of negotiations over compensation for losses incurred through the purchase of the construction company John Laing

The funds, which include Tesco, BBC, BAe Systems, Magnox, Bupa, Smurfit Kappa, Kent County Council, South Tyneside Council and the Railway Industry pension scheme, say Henderson is responsible for the losses of the Henderson PFI Secondary Fund II, in which the funds invested in 2005. Since then the fund has fallen in value by 60% to £225m.

When speaking to Pension Funds Insider, a spokesperson for the schemes said further information could not be provided until the court decided to make the documents public. He added that although the reasons for the claim were accurate, reports on the amount of losses being claimed, which have varied from £170bn to £350m, were unfounded.

The group of disgruntled investors claim that Henderson promoted the fund as a low risk investment that would provide a steady inflation-proofed income stream for the future.

However, the purchase of John Laing came at a cost of £1bn after a bidding war with Aviva and is said to have resulted in the fund's poor performance.

The fund is said to have lost money as the cost of debt rose after during the crisis. At that time the contractor was forced to inject money in its defined benefit (DB) scheme in order to stop the ever increasing deficit.

While the unfortunate events of the credit crisis were therefore the immediate reason for the poor performance of the investment fund, pension funds can argue that acquiring a company at a cost greater than the value of the fund runs counter to the promised low-risk approach.

The asset manager responded with a statement saying it was confident it was not at fault and would "defend itself vigorously".

"As previously disclosed, investors in Henderson PFI Secondary Fund II L.P. ("Fund II") raised complaints in correspondence more than 12 months ago.

"Today, Henderson Equity Partners (GP) Limited and Henderson Equity Partners Limited, subsidiaries of Henderson Group plc, and Fund II, have been served with legal proceedings by a majority of investors in Fund II.

"The proceedings involve alleged breach of mandate and misrepresentation. All the claimants are sophisticated investors. We have considered these complaints carefully. We are confident we have no legal liability to investors in this fund. We will vigorously defend these proceedings."

It is the first case of a pension fund taking one of its asset manager to court in the UK for over ten years. The last case was Unilever vs. Merrill Lynch Investment Managers in 2001 which resulted in the investment manager being forced to pay the scheme £70m.

azeevalkink@wilmington.co.uk