When President Bush signed The Pension Protection Act of 2006 back in August, hedge funds and private firms had reason to cheer as public pension plans would now be permitted to invest in alternatives to their heart’s contents. Ah, but what could potentially fill their pockets with new inflows can also empty them. Speaking at a seminar at the law firm of Alston & Bird, Susan Mangiero, a managing director at of BVA, warned that there may be legal hell to pay from angry investors who sue over asset losses and that can trickle down to all those that contributed to the losses. Mangiero predicted that the act will result in an uptick in litigation for breach of fiduciary duty if a pension plan suffers from losses or even subperformance of hedge funds. The legal tentacles would first reach the pension plan trustees, who in turn will look to sue everyone in sight connected to the fund, namely fund managers, consultants or fund of funds. She pointed to Amaranth Advisors’ $6 billion losses, which caused between $85 million and $100 million in assets of the San Diego County Employees’ Retirement Association to evaporate. The pension plan, which has come under attack for its investment, has hired the law firm of Bernstein Litowtiz Berger & Grossmann to examine its legal options.
