The National Employment Savings Trust contracted State Street Corporation to run its fund administration service a day before it was revealed a subsidiary had settled out of court in a dispute over US public pensions.
Nest agreed the contract on October 25. On October 26, Washington State Investment Board announced that State Street Bank, which was the custodian of several WSIB public pension schemes, had agreed to pay $11.7m following a dispute over the pricing of foreign exchange transactions.
State Street Bank spokeswoman Lucy Davidson says: “The settlement resolves a contract dispute relating to the manner in which we priced some foreign exchange transactions during our 10-year relationship.”
In a separate case, California State is suing State Street Bank for $200m after California’s attorney general, Edmund G Brown, claimed the firm overcharged by $56.6m on foreign currency trades over eight years and deliberately concealed the fraud.
In October 2009, Brown said: “State Street bankers committed unconscionable fraud by misappropriating millions of dollars that rightfully belonged to California’s public pension funds.”
Davidson says the two cases are “significantly different”. She adds: “We are vigorously defending the State of California’s allegations”.
State Street works with over 1,000 pension funds worldwide, with £12.8tn under custody and administration and over £1tn of assets under management.
A Nest spokeswoman says: “Nest is confident that State Street will deliver a first-rate service at a low cost and we have strong service levels with suitable remedies in the event of a service failure.”
Nest is expected to advertise for fund managers in the Official Journal of the European Union this week. It is looking to invest in a global equities fund, a UK mixed interest fund, a UK gilts indexed fund, a cash fund and a diversified beta fund.