Investors should probe their investment managers about whether the recent Libor scandal has had an impact on their portfolios industry figures have said.
The National Association of Pension Funds (NAPF) said it was difficult for pension funds to pinpoint exactly how the Libor manipulation scandal has impacted their investments because it could have happened through a range of financial instruments.
However, NAPF head of corporate governance David Paterson said: “Pension fund trustees should ask their fund managers to tell them if and how their assets have been affected.” This came after Barclays was fined £290m by UK and US regulators for attempting to manipulate Libor between 2005 and 2009 which prompted the resignation of chief executive Bob Diamond and a Parliament-led inquiry into the issue.
Buck Consultants managing director Fraser Smart said it was unlikely those affected will be aware of possible losses because of the difficulty in unpicking relevant transactions and proving that Barclays’ action actually impacted on any given transaction. “When your pension fund’s investment manager is claiming to have met his target of, say, Libor plus 3, ask him whose Libor rate he is using the real one or Barclays,” he said.
Smart added a number of pension schemes are likely to consider legal action to try to establish and mitigate their losses. He said: “We need people in Government to impose much tighter laws on banks to make them behave professionally and in a reasonable and decent manner. The public image of bankers already at an all-time low means banks and in particular Barclays can ill afford another scandal.”
The NAPF also said the audit of business practices at the bank should include a full review of pay policy to rebuild confidence.
Paterson said: “Institutional investors like pension funds should be concerned about whether the commitment to improved risk controls has any real meaning. Shareholders should also ask why the board was apparently unable to carry out its oversight duties effectively.”
Meanwhile, Broadstone actuarial director John Broome Saunders said: “The revelations about Libor are a cursory reminder that no index can be a perfect measure of ‘the market’ and that many indices include subjective elements, or have been constructed using arbitrary principles that do not necessarily have objective justification.” He added: “Trustees must bear these potential failings in mind, rather than slavishly placing their faith in the sanctity of any specific index.
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