City lawyers anticipate a wave of litigation over last year’s pension fund crisis, which was triggered by the use of liability-driven investment strategies to control interest rates and inflation.
Lawyers say LDI-related litigation could be directed against the advisers who implemented the strategies or the asset managers who managed the funds.
The London Lawyers Association’s annual study asked 147 senior lawyers about upcoming trends. Many expect litigation over the use of LDI strategies.
Some pension plans, primarily pooled funds, suffered losses when their investment instructions were not followed in a timely manner, their liquidity plans were found to be inadequate, or because their LDI funds were blocked from trading during the height of the crisis.
Nicholas Heaton, president of the LSLA and a partner at the law firm Hogan Lovells, said of possible LDI litigation: “I hope there will be claims. . . Whether there will be a large number of claims is less clear.”
But many believe that it will not be easy for the schemes to recover significant compensation for their LDI losses.
“Asset managers and investment consultants will have defenses,” said Anna Rogers, a senior partner at Arc Pensions Law.
She said a defense may be that it was “up to the trustees to understand ‘how LDI strategies worked’ and to know what they were doing. Asset managers who are sued could point fingers at trustees, and also investment consultants, for trustees. This is going to take a long time to develop.”
The study also found that 75 percent of lawyers expected an increase in US-style class action and group litigation in the next two years, especially for violations of competition law.
The LSLA study found that lawyers expected an increase in insolvency claims, as well as American-style class action cases. These are increasingly being brought before the Competition Appeal Tribunal, which currently has 26 cases before it, including class action claims against companies such as Apple and BT.
The wave of US-style class action kicked off with a multi-million dollar lawsuit brought against Mastercard on behalf of millions of consumers by Walter Merricks, the former financial ombudsman who claims Mastercard breached EU competition law by imposing unfair fees — known as “interchange fees” — on customers. Mastercard is contesting the lawsuit.
Heaton said he expected “a lot of class action lawsuits” given the interest in backing such cases from litigation funders, companies that back legal cases in exchange for a share of final compensation.
The LSLA study also found that the majority of law firms had embraced hybrid work. Just 3.4 percent of lawyers surveyed said they worked at firms that were returning to the office full-time, and 57 percent were working partially remotely, typically with three days a week in the office.
Law firms have increasingly emphasized flexibility and work-life balance in their hiring to differentiate themselves from competitors who pay higher salaries but may want lawyers to be in the office five days a week. A fierce war for legal talent amid an M&A boom has pushed starting salaries for newly qualified lawyers to record highs.
“Covid broke the mold and now you can’t say you have to be in the office five days a week to conduct litigation, which is what people might have said three years ago,” Heaton said.