The Los Angeles County Employees Retirement Association (LACERA) issued a request for quotation (RFQ) last Wednesday seeking a consultant that can help the $38.5 billion fund find a new custodian.
LACERA sued its current custodian, BNY Mellon, in March last year, but the potential switch is not related to the suit, CIO David Kushner told Global Custodian Monday. The lawsuit alleges that BNY Mellon overcharged LACERA on FX trading fees, supposedly failing to supply best-execution pricing. LACERA retained the bank for custody but ceased their currency trading agreement.
It has been over ten years since the last formal review of the custody relationship, Kushner says.
Charges that BNY Mellon made false claims for payment were thrown out, but charges of breach of contract, breach of fiduciary duty, fraud by concealment and unlawful, unfair or fraudulent business act or practice remain.
Several pension funds and public officials have brought suits against their custodians over allegedly inflated FX pricing in recent years. In one of the highest-profile cases, the New York attorney general brought a $2 billion suitagainst BNY Mellon over alleged oversized profit margins on FX trading. One of the other suits, in Virginia, was dismissed earlier this year.
Kevin Heine, a spokesman for BNY Mellon, says the firm has consistently denied the allegations in the complaints and will vigorously defend itself.
In March, the treasurer of Ohio replaced BNY Mellon and State Street with J.P. Morgan and Citi as custodians for four state pension funds worth $41 billion in total. Previously, the Ohio attorney general sued BNY Mellon on behalf of two of the pensions, claiming the custodian was “defrauding taxpayers” by overcharging on FX transactions.
LACERAs RFQ requests a consulting firm that can analyze a list of factors, including the optimal compensation requirements for core custody, securities lending, foreign exchange, performance measurement and other services in order to best ensure alignment of interests and to maintain transparency.
The funds contract with BNY Mellon, which has lasted since Nov. 1, 1994, ends May 1, 2013. It can be terminated early by LACERA upon 30 days notice, the RFQ says.
LACERA will select its consultant by August 15, issue a custodian RFP September 13, announce its chosen custodian December 13 and begin conversion to a new custodian by Feb. 4, 2013, according to the consultant RFQ.
Any submissions to LACERA in conjunction with the RFQ will become a public record under the California Public Records Act. The deadline for consultants to respond to the RFQ is 5 p.m. PDT, July 13.
Ole Skaar