There are currently about 27 Australian class actions either in the process of being filed or already filed in 2018. Five-or-so years ago, in Australia, there might have been a handful taking place at any given time. Australia is one of the most active class action jurisdictions behind the US and institutional investors, their custodians, managers, and advisors are becoming more involved in these cases.
According to Steven Longley, senior vice president of corporate development at Financial Recoveries Technologies (FRT), a Massachusetts-based global litigation monitoring and recovery services firm, too many investors have been missing out on potential recoveries for losses caused by the misdeeds of their investee companies.
“In the past, investors, such as super funds, did not know that they could participate in recovery efforts with very little risk exposure to themselves,” he said. “FRT offers services which allow investors to be aware of what recovery opportunities are available to them.”
FRT is the largest firm of its type in the world. It tracks all class actions around the globe, provides advice to clients, such as custodians in particular but also directly to big super funds and fund managers with fiduciary offerings, and then it administers the progress of those actions. This involves dealing with lawyers, litigation funders and directly with investors. That’s why it tends to be a technology-driven business. Imagine tracking so many companies in so many different jurisdictions. Technology is essential.
Which brings us back to Australia. FRT recently produced a confidential document to its Australian clients which detailed the possibilities and actualities in the class action space. There were at least nine ‘actualities’ – where an action has been filed – and another 18 ‘opportunities’ where an action was quite possible.
FRT describes the involvement of all custodians, investors, and managers in the process as “money for jam.” FRT’s Australian representative, Allen Partners, which provides on-the-ground support, says that custodians have performed this role for quite a while, but each jurisdiction is a little different, and they are not specialists in the field.
“We now deal with most custodians around the world to assist in the process for mutual clients,” says Nicholas Allen, one of the firm’s principals. “We identify situations where client portfolios have been impacted by corporate wrongdoing that is subject to legal investigation, help evaluate the extent of eligible losses, and where appropriate, assist them in registering for class actions or other recovery efforts.”
Steven Longley says that sometimes not all the data, such as OTC securities information and other derivatives, resides with the custodian, which adds to the complexity of the administration challenge. Super funds are increasingly changing their custodians. “When they do, the new one is not always aware of the actions which have been going on beforehand,” he says.
The world of class action recovery business is not too different from funds management. The organizers speak the same language. They take measured decisions on likely success rates of any action and they provide a result, or not, for which everyone involved is remunerated mainly on a success-fee basis.
That’s what FRT’s Longley means as “money for jam.” It’s a low-risk way to what managers could consider “alpha.”