ERISA Pension Plans: Due Diligence for Hedge Funds and Private Equity Funds

Posted by Susan Mangiero on April 02, 2012

Join me on May 1, 2012 for a timely and interesting program about alternative investment fund due diligence and other considerations for ERISA plan sponsors, their counsel and consultants. Click here for more information.

This CLE webinar will provide ERISA and asset management counsel with a review of effective due diligence practices by institutional investors. Best practices will be offered to mitigate government scrutiny and suits by plan participants.

Description

With the DOL's and SEC's new disclosure rules and heightened concerns about compliance and valuation, corporate pension plans that invest in alternatives must focus on properly vetting asset managers more than ever before or risk being sued for poor governance and excessive risk-taking.

The urgencies are real. The use of private funds by asset managers is crucial for 401(k) and defined benefit plan decision makers. Understanding the obligations of private funds is essential to any retirement funds with limited partnership interests.

In addition, suits and enforcement actions against asset managers make it incumbent on counsel to hedge fund and private equity fund managers to fully grasp and advise on full compliance with the duties of ERISA fiduciaries to plan participants.

Listen as our ERISA-experienced panel provides a guide to the legal and investment landmines that can destroy portfolio values and expose institutional investors and fund managers to liability risks. The panel will outline best practices for implementing effective due diligence procedures.

Outline

  • ERISA fiduciary duties for institutional investors
    1. Hedge funds and private equity funds compared to traditional investments
  • Regulatory developments
    1. Disclosure
    2. Compliance
    3. Valuation
  • Developments in private litigation involving pension plan fiduciaries and alternative fund managers
  • Best practices for developing due diligence plans

    • Benefits

    The panel will review these and other key questions:

  • What are the regulatory concerns for ERISA pension plans that allocate assets to hedge funds and private equity funds?
  • What are the potential consequences for service providers that fail to comply with new fee, valuation and service provider due diligence regulations?
  • What can counsel to pension plans and asset managers learn from recent private fund suits relating to collateral, risk-taking, pricing, insider trading and much more?
  • How should ERISA plans and asset managers prepare to comply with expanded fiduciary standards?

    • Following the speaker presentations, you'll have an opportunity to get answers to your specific questions during the interactive Q&A.

    Faculty

    Susan Mangiero, Managing Director
    FTI Consulting, New York

    She has provided testimony before the ERISA Advisory Council, the OECD and the International Organization of Pension Supervisors as well as offered expert testimony and behind-the-scenes forensic analysis, calculation of damages and rebuttal report commentary for various investment governance, investment performance, fiduciary breach, prudence, risk and valuation matters.

    Alexandra Poe, Partner
    Reed Smith, New York

    She has over 25 years of experience in investment management practice counseling managers of hedge funds, private equity funds, institutional accounts, mutual funds and broker-dealer advised programs. She counsels hedge and private equity fund advisers in all stages of their business and due diligence matters.

    Pension Risk Management and Governance: Challenges and Opportunities in a New Era

    Posted by Susan Mangiero on January 04, 2012

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    Please join me and fellow panelists on January 24, 2012 fro. 4 to 6 pm for a topical discussion about pension risk management and governance. Given that the last few years have posed unprecedented challenges for plan sponsors, both corporate and public, as well as their asset managers and consultants, life in employee benefit land will never be the same again. Market volatility, low interest rates, increased scrutiny about carrying out fiduciary duties, calls for better disclosure and greater complexity keep pension decision-makers busy.

    Hear what legal and financial professionals have to say about what keeps plan sponsors and their advisors and asset managers up at night and how they can implement best practices for pension risk management within a fiduciary framework.

    The roster of speakers who will address both defined benefit and defined contribution plan best practices and concerns include:

    • Mr. William Carey, President, F-Squared Retirement Solutions
    • Attorney Gordon Eng, General Counsel and Chief Compliance Officer, SKY Harbor Capital Management, LLC
    • Dr. Susan Mangiero, CFA, FRM, Risk and Valuation Consultant and Expert Witness
    • Attorney Martin J. Rosenburgh, CFA

    Continue Reading

    Financial Model Mistakes Can Cost Millions of Dollars

    Posted by Susan Mangiero on June 02, 2011

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    In a recently published article about financial models entitled "Financial Model Mistakes Can Cost Millions of Dollars" (American Bar Association, Section of Litigation, Expert Witnesses, May 31, 2011), Dr. Susan Mangiero defines model risk and explains why it is so important. Referencing the recent $242 million enforcement action by the U.S. Securities and Exchange Commission as a result of model mistakes made by a well-known asset management firm, this financial expert cites the heightened regulatory and litigation imperatives with respect to risk and valuation models. She concludes the article by listing some of the ways to mitigate risk. These include, but are not limited to the following:

    • Hire knowledgeable programmers with capital market experience;
    • Create and follow a set of policies and procedures that govern how and who will validate financial models over time and what will trigger revisions in a model(s);
    • Avoid conflicts of interest that would reward managers for ignoring problems and would potentially preclude an independent and objective assessment of problems and related corrective action(s);
    • Test assumptions for validity in stable markets as well as extreme circumstances;
    • Stress a model using a sufficient number of economic scenarios to gauge its predictive power and whether results can be relied upon in both good or bad times;
    • Educate personnel about how a particular model is supposed to work;
    • Establish a response strategy should a problem occur and investors need to be informed before things get out hand;
    • Scrap models that are overly complex and expensive to replicate;
    • Don't be afraid to ask questions about inputs, data quality, results, and concerns; and
    • Invite informed outsiders to offer an independent and regular critique on a confidential basis.

    Working With a Financial Expert

    Posted by Susan Mangiero on January 07, 2011

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    As of December 1, 2010, a revised Rule 26 of the Federal Rules of Civil Procedure no longer mandates full disclosure of draft expert reports. One anticipated plus of this extension of the work-product protection to the expert is a smoother process. Importantly, the use of a financial expert early on offers another route to effective litigation support.

    In "Tips From the Experts: Working Effectively With A Financial Expert Witness" (The American Bar Association, The Section of Litigation, Expert Expert, Summer 2008), Dr. Susan Mangiero, CFA, FRM describes the benefits of a candid dialogue about data quality, document management and the use of explanatory materials for the trier(s) of fact. Inasmuch as economic and financial analyses can get complex quickly, my professional preference is to carefully document underlying assumptions and to avoid the use of too much jargon. While the details are critical to take into account, many situations can be reduced to risk-return essentials. A clear and concise focus on the fundamentals is integral to an effective expert report, as well as interim calculations.

    While my resume boasts solid industry experience, my clients likewise benefit from my work as a speaker, author and workshop instructor. In litigation, arbitration and contract dispute discussions, a single word can mean different things to different individuals. Parsing ordinary language (whether in the form of submitted evidence, opposing expert rebuttal, being deposed and/or giving testimony) is a critical responsibility of the financial expert witness.

    Yet another advantage of engaging a financial expert early in the process is that she can share insights about existing industry studies that could be helpful during the discovery phase, posting a Daubert challenge and adjudication, if settlement does not occur. Furthermore, since data varies by quality, cost and availability, the financial expert's knowledge can assist the hiring attorney in establishing an appropriate litigation support budget.

    The bottom line is that financial disputes often take on a life of their own unless the expert and the attorney have an ongoing and open dialogue about documents, methodology, data and models. "Clear communication goes a long way to making everyone's life easier."