Pension fund giant CalPERS recently extended a custody mandate with State Street, despite issuing a lawsuit accusing the custodian of fraud.
According to the minutes of the Investment Committee meeting (February 16, 2010), Matt Flynn, CalPERS division chief, Operations, Performance and Technology, notified the Committee on plans to extend the custody services of State for another year.
In October 2009, California Attorney General Jerry Brown sued State Street for overcharging CalPERS and sister fund California State Teachers Retirement System on foreign-exchange trades. The false trades have been backdated to 2001, and according to CalPERS, the excess amount charged to the funds amount to $56 million.
The current custody mandate was awarded to State Street in July 2006 for three years plus two one-year options. According to a memo from Flynn explaining the move, the extension provides a three month period prior to July 1, 2011 to allow for a possible transition to a new Master Custodian.
The transition also includes plans to enhance its custody relationships. According to the memo: The new, enhanced Master Custody Structure is necessary to accommodate the needs of our complex, global portfolio and our sophisticated internal trading operations. In addition, the new structure will include the defined contribution plans custody services (currently under a separate contract).
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