NETHERLANDS - Losses on securities lending collateral invested in money market funds have dramatically hit Dutch pension funds, leading industry figures have told Global Pensions.
As a result of the situation, pension funds are said to be discussing the possibility of taking legal action against unnamed custodians, as well as the possibility of changing service providers.
In some cases more than 40% of the entire collateral reinvestment pool now had a maturity of longer than one year. Sources said this implied the overall losses could be greater than currently realised.
One pension fund manager, who declined to be named, said the custodians, which managed the investments, "had sent some reimbursement, but it would not be sufficient to cover the potential losses".
He said: "At this stage, pension funds remain uncertain of whether the proceeds from the collateral will be returned at all."
Global Pensions contacted several Dutch pension funds, which declined to comment on the record.
A spokesperson for APG said: "It is our policy to report our performance figures three times per year. So, also in 'normal' circumstances, we would not comment on this question. For that matter, our performance figures are also on an aggregate level."
In late September, the custodian Northern Trust announced it was taking action to provide support for securities lending clients whose cash collateral was invested in five constant dollar, commingled investment pools negatively impacted by recent market events.
A spokesperson for Northern Trust told Global Pensions: "Unprecedented turmoil in the financial markets has resulted in a crisis of confidence and an almost total lack of liquidity.
"The cumulative effect of these developments caused a decline in the market value of securities lending collateral pools, resulting in a collateral deficiency. Northern Trust will contribute approximately US$150m to make up a portion of the collateral deficiency."
State Street said the net asset value (NAV) of State Street Global Advisors' money market funds had never declined below US$1, including the Navigator Securities Lending Trust, a registered fund used in connection with collateral management for State Street securities lending programme.
Bank of New York Mellon (BNY) announced last September it would "be issuing support agreements" for one fund used for the reinvestment of cash collateral within BNY's securities lending business, impacted by Lehman Brothers bankruptcy filing.
"The support agreements are designed to enable these funds with Lehman holdings to continue to operate at a stable share price of US$1," BNY added.
Nathan Douglas, secretary general of the Institutional Money Market Funds Association (IMMFA), commented: "The industry has been under strains since the announcement of Lehman's bankruptcy which resulted in Reserve Primary Fund breaking the buck.
"Like any financial institution, money market funds did not escape the pressure which has been exerted across the spectrum of financial services."
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