(January 25, 2013) — John Corrigan, the former investment head of Ireland’s National Pensions Reserve Fund (NPRF), told a parliamentary committee that the fund is “concerned with the quality of governance within State Street.”
State Street overcharged the pension fund for transition management services by an estimated €2.65 million (5.5 times the contractual fee), a governmental audit revealed in September. State Street has since reimbursed the NPRF its €2.65 million. NPRF dropped State Street as its transition manager, but has kept on the Boston-based firm as a passive manager.
Corrigan, who now leads Ireland’s national debt office, told the Oireachtas Joint Committee on Finance, Public Expenditure and Reform that decisions on NPRF’s future relationship with State Street await the results of the Financial Services Authority’s (FSA) ongoing investigation.
“We have no issue with the indexed funds which are managed in a separate business unit within State Street,” Corrigan said, “but we would be concerned with the quality of governance within State Street and other issues. To date, we only have the company’s account on which to rely and before we make any decision on the future basis of the relationship, if any, with State Street, we would wish to see the report from the regulator in the United Kingdom.”
A spokesperson from State Street provided aiCIO with the following statement on the situation: “As previously discussed, this relates to a transition management matter that we self-reported to the FSA in September 2011. In a limited number of instances, we charged commissions on transition management mandates that were not consistent with our contractual agreements.”
Corrigan did not indicate when the FSA’s report will be released, but said that the regulator “was following the matter up as quickly as it could and would report on it.” Corrigan also explained that he and other members of the Committee of Public Accounts had written to the FSA “expressing the committee’s concern that the authority had not reported.”
The National Treasury Management Agency originally became aware of the non-contractual fees when, Corrigan said, “it saw certain press reports which aroused suspicion and on foot of that, it became apparent that there were irregularities…There were certain staff in State Street who had been sacked, reportedly, and that set alarm bells off. We made inquiries, whilst reporting the matter to the Comptroller and Auditor General as our external auditor, as would be the right thing to do.”
In addition the pension’s passive management relationship with State Street, the possibility of further financial settlement is also open, according to Corrigan. The committee’s chairman asked about “residual matters” related to State Street, and Corrigan replied, “We have been made good on the face losses that were incurred on the State Street transactions. We have accepted that money, but not on the basis of full and final settlement. The matter is still open in terms of seeking further remedies. We feel that it makes sense commercially to leave matters, just for the moment.”