ConvergEx Bermuda Woes Spotlighted
The cover story of the February issue of “aiCIO” explains why the Federal Bureau of Investigation, the Securities & Exchange Commission and the US Postal Service have reportedly focused their attention on the transition management practices of ConvergEx Group, an affiliate of leading global custodian BNY Mellon with a major Bermuda presence.
Published by Asset International, “aiCIO” is an international finance magazine with a target readership thate includes chief investment officers and senior investment professionals. The print and digital publication reports news, opinion, and research focusing on investment issues affecting pension, insurance, and sovereign wealth funds, as well as endowments and foundations.
“Outside of public and corporate pension plans, few people know what transition management is,” said Kip McDaniel, “aiCIO” editor in chief. “However, this little-known business has created an outsized stench in recent months and embarrassed some of the world’s largest custodian banks.”
He noted that Boston-based US-based financial services holding company State Street reimbursed at least one major pension fund recently because of transition management overcharges.
According to “aiCIO”, ConvergEx Group’s Bermuda operation appears to have attracted the attention of investigators for similar indiscretions.
A ConvergEx spokesperson told “aiCIO “that the firm terminated multiple employees in recent months “after learning that certain employees violated our code of conduct,” including an individual described as central to the Bermuda operation.
Transition managers that claim to act as agents can legally charge a client a commission or a mark-up when helping pension plans liquidate one set of securities in order to shift to another. However, they are prohibited from charging both a commission and mark-up.
“ConvergEx claims that its compensation policies are fully disclosed to clients and no laws have been violated, but is increasingly apparent that pension plans are vulnerable to excess fees from custody banks and other providers of this service,” Mr. McDaniel said.
In addition to transition management, some of the industry’s largest custodians in the past several years have been cited for improper billing practices in regard to securities lending and foreign exchange trading. “In each of these instances, the unifying thread is that the custodian bank has more transaction data than the pension plan, which can place the client at a decided disadvantage,” Mr. McDaniel observed.
He added, “The multiple occurrences of overcharging have given some of the leading global custodians a black eye, and may prompt regulatory bodies to consider widening the investigation.”
“aiCIO” publisher Asset International is a privately-held provider of information and technology to global pension funds, asset managers, financial advisers, banking service providers, and other financial institutions in the private and public sector.
