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Nest admin firm is embroiled in US court disputes

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.

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There are 2 comments at the moment, we would love to hear your opinion too.

  1. 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.”

    “Strong service levels” provided by whom? And what is meant by “suitable remedies” (presumably if things start going wrong)?

    Such reports are hardly confidence-inspiring, are they? Is it really a good idea to have the admin for a national UK scheme done by an Asian company, the investment admin done by a US company and for NEST to offer a range of brand new, mostly index tracking funds for whom managers haven’t even yet been appointed? Surely, a national UK scheme should be based on a UK administrator and UK investment funds? If ever there was a formula guaranteed to maximise the number of people likely to opt out, this surely has to be it.

  2. A lot of investors caught up the Keydata and Lifemark scandel are saying they would never have invested had they known the investments were “offshore” in a company in Luxembourg and bought by US investment companies. Many of the Keydata investors, are quite sophisticated compared to the Nest target market.
    As Julian says, what do you think these punters will say when they hear the admin is from India and the investments held in US of A?

    One way extradition treaties too, from UK to USA we have seen the NatWest 3 and the UFO spotter sent there using Terrorist legilsation, but in reverse, if the same happens as with the contested cases above, will anyone be forced to come to court in the UK?

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