April 27, 2016
Having diversified their portfolios beyond U.S. stocks and bonds, today’s institutional investors are now diversifying the legal tools they use to protect those investments. In cases where markets were manipulated, some pension funds are suing under antitrust laws and the Commodity Exchange Act to recover losses and make rigged markets more efficient.
While many of these alternative investment cases are still in their nascent stages, early results offer investors hope. An antitrust case involving the market for credit default swaps recently settled for $1.9 billion and injunctive relief that should make it easier for credit default swaps to be traded on exchanges. Another case, focused on manipulation of the foreign exchange markets, has yielded $2 billion in partial settlements thus far.
So what caused this increase in claims under the antitrust laws and the Commodity Exchange Act? And what should pension funds and other institutional investors do to make sure they are identifying and managing potential claims that are, after all, assets of their trust?
The rise in private lawsuits by investors alleging antitrust and Commodity Exchange Act violations is primarily linked to two factors. First, the courts and Congress have whittled away at U.S. securities laws, narrowing the circumstances under which investors can sue and making it tougher for them to prevail when they do. Second, institutional investors have expanded their portfolios to include a variety of alternative investments.