Industry Overview – The World of Shareholder Actions

Through their domestic and international investments, institutional investors are now affected on a weekly, if not daily basis, by a range of class, collective and group shareholder actions around the world, the purpose of which is to recover investment losses arising from corporate (or adviser) non-disclosure, misrepresentation or fraud.

The scale of the industry

Each year there are 300-400 new shareholder actions filed in – currently – around 20 jurisdictions across North America, Europe, Asia, Africa and Australasia. Recent research shows that around two-thirds of these cases settle, resulting in billions of dollars each year being distributed to investors through these legal processes.

$60 billion returned to investors in the last ten years

US shareholder actions alone have returned over $60 billion to investors in the last ten years and recoveries from non-US actions are expected to reach $8 billion annually according to industry sources. However, most investors do not have in place the monitoring and recovery processes required to ensure they identify and respond to all such situations and, importantly, recover the settlement monies that they are eligible to receive.

$20bn ‘left on the table’

As a result, investors have historically missed around 50% of what has been available – some $20 billion in the last decade. Unclaimed money is not returned to the company at issue but is generally re-distributed to other investors who do properly claim their share. Time and again, clients come to IPS having seen a fraction of what they should have recovered from shareholder actions and are surprised by how much more they can recover once they have a comprehensive shareholder action system in place.

Internationalisation of class actions

And since the shareholder action landscape has changed so dramatically in the last few years from being almost entirely US class action dominated to a much broader international network of shareholder action jurisdictions, all with differing legal systems, requirements and processes, this problem has only become more conspicuous, with many investors completely unaware of the many shareholder actions that impact their – and their clients’ – funds.

Though much more complex to manage, this new universe of shareholder actions will return significantly more money to investors, particularly as opt in non-US actions recover a far higher percentage of client loss than opt out US actions. At the same time, investors have become more exposed for missing eligible payments as clients and beneficiaries have begun to wake up to the fact that investors are failing to collect money due to them by not having a comprehensive and robust monitoring and recovery service in place.

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Parallel actions: which to choose?

Parallel actions, concerning the same or similar defendants and subject matter in the same or different jurisdictions, have also started to become routine, requiring investors to make decisions between competing jurisdictions and cases if they wish to recover their (or their clients’) previous losses.

These developments have made it both difficult and uneconomic for the vast majority of institutional investors to manage their shareholder actions responsibilities in-house and have significantly increased the need for specialist class action monitoring and recovery services, such as IPS provides.

Understanding the new global landscape

From a legal perspective, it is generally accepted that investors have a fiduciary duty to understand where they are impacted by shareholder actions and collect eligible recoveries, particularly where funds are managed on behalf of clients or beneficiaries. Increasingly, having a robust and worldwide shareholder action policy and process for ensuring monies are recovered is seen as a part of investors’ operational governance. As shareholder actions have spread around the world, many more institutional investors have found that their investor action processes are not sufficient to cope with the new global landscape.

Officers continue to note significant improvements in this area since IPS were appointed in February 2013. ~ Local Government Pension Scheme

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