The New Zealand Superannuation Fund (NZS) heads back to court this week in the next phase of a long-running effort to recover about $200 million of taxpayer dollars lost in a soured 2014 Portuguese bank debt investment.
In a two-day hearing scheduled to begin on April 17 in the UK Supreme Court both the NZS et al and Goldman Sachs International (GSI) will contest a 2016 decision that removed the case from English legal jurisdiction.
The latest appeal will determine whether NZS (along with a host of other institutional investors) and GSI can chase a US$785 million loan to the now-defunct Banco Espirito Santo (BES) – packaged by GSI as ‘Oak Finance’ – through UK courts.
According to a UK Supreme Court announcement, the two-day hearing will hinge on a couple of points:
- whether a August 2014 decision by the Portuguese central bank (Banco de Portugal) to transfer certain BES assets, including the Oak loan, to a new ‘good bank’ entity – Novo Banco – could be unwound unilaterally by Portuguese authorities in a move in December of the same year; and,
- whether the December Banco de Portugal decision to shift the Oak assets back to BES “required recognition by the English courts”.
In their December 2016 decision all three presiding judges ruled the Oak dispute should be heard in Portuguese courts.
Banco de Portugal shifted the Oak loan from Novo Banco to BES in December 2014 after deeming GSI (with the Oak debt) collectively owned more than 2 per cent of BES and failed to qualify for ‘good bank’ status.
Under the Banco de Portugal August 2014 terms all BES liabilities shifted to Novo Banco except those: “…whose participation is equal to or higher than 2% of the share capital or to persons or entities which in the two-year period preceding the transfer held a participation equal to or higher than 2% of the capital of BES . . . (c) . . . or third parties acting on behalf of the persons or entities referred to in the foregoing subparagraphs.”
The NZS wrote its approximately $200 million Oak investment down to zero in February 2015.
In a statement at the time, then NZS chief, Adrian Orr, said the court battle was likely to be protracted: “We are not entering into these legal proceedings lightly and have made the decision only after exhausting all other options.
While bond failures are not uncommon in the investment world, the circumstances of this case are highly unusual. First, we have been treated unequally and unlawfully. Second, our default insurance appears to have been inadvertently rendered ineffective due to the retrospective decision. We have a very strong legal case and a high level of confidence of success.”
A NZS spokesperson said while the latest appeal wraps up on April 18 the final decision may not be known for some time.
Oak creditors are also pursuing the matter in Portuguese courts. As well as NZS the Oak litigants include: Andorra Gestió Agricol Reig; Apwia Fund; Olifant Fund; Elliott International; The Liverpool Limited Partnership; Karrick Limited; Gl Europe Luxembourg; Silver Point Luxembourg Platform; and, Tdc Pensionskasse.
Meanwhile, the NZS third-party manager list has shrunk slightly in recent months with a hedge fund and private equity real estate exposures closed out.
NZS has received a final payout from hedge fund manager D E Shaw following the closure of its global macro Heliant International Fund last year. The $38.4 billion NZ sovereign wealth fund is also due for a cheque from the Savanna Real Estate (PIV) Fund II as the vehicle reaches maturity.
The Savanna fund invested in private equity property in New York, Washington and Boston.
NZS, now recruiting for a new CEO following the exit of Orr last month, currently has just over 30 external fund manager mandates – down from a high of more than 40 a few years ago.