A leading class action specialist predicts that, with an increase in the amount of pension funds claiming back lost investments, settlements in securities class actions outside the US could rise to $8.3bn per year by 2020.
Class action specialist GOAL Group predicts that settlements in securities class actions outside the US will rise substantially. Up to very recently pension funds only focussed on claiming back lost investments in the US, as this was the market with the most developed legislature. However, pension fund trustees, and their custodian banks, have a fiduciary duty to recover beneficiary returns from class actions, and more and more funds will have this added as a clause in their contract, forcing them to seek legal solutions in many other nations across the world.
The root of this international diversification seems to have been a combination of restrictions on jurisdiction definitions in the US Federal courts (for example the Morrison v. National Australia Bank ruling), along with a growing desire to develop domestic class action procedures in many countries around the globe.
A worrying fact, however, in the new study by the legal consultants identified that if non-participation rates seen in US class actions are experienced and continued in non-US activity, by the end of the decade USD 2.02bn of investors' rightful returns will be left unclaimed each year.
In the UK, pension funds currently account for 38% of total assets under management - an estimated 1.6tn (according to the 2011-2012, IMA Annual Survey). On average 40% of these funds portfolio is invested in foreign stocks, of which only 11% is invested in US stocks.
GOAL says the awareness of what is lost out on, on an annual basis, should be a wake-up call to fiduciaries. Especially now that funds are seen to be including the responsibility for class action identification and participation in contractual agreements with their custodians, these need to be seen trying to recoup the investment losses in order not to be sued. Some custodians though are restricting the geography of their class action service level, which could indicate that non-participation rates are likely to be even higher than at current US case levels.
Stephen Everard, CEO of the GOAL Group, said the excuses of not participating in class action lawsuits was slowly disappearing: "Until recently, the main focus of securities class actions was on the US. However, class action growth outside the US is now increasing rapidly, and is predicted to mirror the growth of the US class action scene in the early part of the 21st century.
"Certain legislatures – currently The Netherlands and Canada – have defined and admitted the idea of a global 'class' where non-US investors in shares listed on a non-US exchange can pursue their securities class actions in those countries' courts. There is no viable excuse for non-participation as a number of specialist service providers can now perform this function at relatively low cost."
The UK is also one of the jurisdictions where US-style securities litigation is developing, along with Germany, The Netherlands and Canada, where a framework is already in place. GOAL says it is "quite possible" that the UK could become a regional centre for the prosecution of these cases.
First published 01.02.2013
monique_simpson@wilmington.co.uk
