It is not uncommon that investment in the pension funds ended in failure. (image: photosteve101/flickr)
SEOUL, Aug. 5 (Korea Bizwire) – In a series of lawsuits against fund management firms to compensate losses from the investment, the court ruled in favor of the fund managers over the institutional investors.
The Seoul Central District Court announced on August 3 that its civil court judges ruled against the plaintiffs including the Government Employees Pension Service, the Military Pension service and the Korean Teachers’ Credit Union over their damage claim lawsuit against the fund management company, MyAsset Investment Management.
In 2007, the three pension funds invested 15 billion won (US$14.52 million), 10 billion won ($9.68 million) and 5 billion won ($4.84 million) respectively into a fund to build a pool villa resort in Bali, Indonesia, and selling the units of the resort. However, as the developer of the project was caught misappropriating a sum of 10 billion won, the project was cancelled in 2008.
The pension funds which recouped barely a half of their investment raised the lawsuit to ask for compensation of 19 billion won (US$18.4 million) arguing that “The investment proposal presented by the fund management firm was misrepresented and the company failed to manage the funds.”
The court said, “The asset management company failed to perform its duty to protect the investors by just advertising that high returns would be guaranteed as it delegate the fund management job to a globally famous real estate development firm, which constitutes a clear case of misrepresentation. Also, it failed to supervise the fund to be used only for the project.” However, it added that the fund management firm didn’t need to compensate for the money.
The judges explained, “As the collateral value that the company is holding now is 20.8 billion won, much higher than the plaintiffs’ sum of loss, it is hard to decide that they lost money in the fund. Also, the collateral can be retrieved by forced sale by an auction unlike the plaintiffs’ argument that they cannot sell the collateral under the Indonesian law.”
It is not uncommon that investment in the pension funds ended in failure. Especially, in case of the government employees’ pension fund, it suffered a huge loss by investing in funds in 2007. The public officers’ pension fund sued fund management or securities firms but lost in lawsuits or partially won for small sums of compensation.
Actually, in 2007 the pension fund lost the total amount of 50 billion won invested in a private equity fund dealing with a leased apartment complex in New York City due to the loss in a lawsuit with tenants and the financial crisis in 2008. The pension fund raised a lawsuit against a securities company and a fund management firm for compensation arguing that the firms did not notify the investment risks fully.
However, the court ruled against the pension fund saying, “Based on the pension fund’s past investment and its investment scale, it is hard to see that the pension fund did not know the highly speculative nature of real estate investment and other related matters including laws.”
Besides, the pension fund invested 10 billion won into an aircraft fund but lost 4.4 billion won. Through a lawsuit against the fund management company, it retrieved 1.3 billion won, only 30 percent of its total loss. The court said at the time, “As an institutional investor, the government employees’ pension fund should have considered more carefully for the risks and limitations that it would face.”
By John Choi (johnchoi@koreabizwire.com)
