Software problems late last month at Bank of New York Mellon Corp. affecting the valuation of 1,200 mutual funds and exchange-traded funds have been resolved, but the issue is leading asset owners to take another look at their custodians.
The Aug. 24 malfunction of the InvestOne valuation program from SunGard Financial Systems, Wayne, Pa., and the subsequent failure of a backup system, left New York-based BNY Mellon unable to provide actual net asset values for mutual funds and exchange-traded funds from 66 fund companies, including Federated Investors, Goldman Sachs Asset Management, Invesco PowerShares, Guggenheim Partners and Prudential Investment Management, sources said.
SunGard officials took responsibility for the software issue, which was resolved by Aug. 31, according to statements from both companies on their respective websites.
Retirement funds contacted by Pensions & Investments were not immediately affected by the malfunction, but sources said it was yet another reason all asset owners should take a closer look at their custodial arrangements.
“At the end of the day, valuation and pricing of the funds is (custodians') responsibility and is what they are paid to do,” said Edwina Easton, Chicago-based director-North America at Amaces, a custodial consultant to institutional investors.
“Ensuring proper technology implementation, backup and mirroring of systems is critical. For an institutional client or participant to understand the extent of the impact to their current assets and accounts, they will need to understand from their investment manager and BNY Mellon whether their plan or funds were affected. However, this goes further than simply understanding the "now' impact. An institutional client should understand how they are set up inside of the custodian's systems.”
Among corporate 401(k) plans that use BNY Mellon as custodian are the $39.88 billion plan at AT&T Corp., Dallas, and the $16.5 billion plan at Hewlett-Packard Co., Palo Alto, Calif. Hewlett-Packard was not affected by the BNY Mellon software issue, according to a company spokeswoman. An AT&T spokeswoman said plan officials would not comment.
The Florida State Board of Administration, which oversees the state's $8.8 billion 401(a) plan as part of the $181.3 billion in assets the board manages, had seen “no impact on our operations in regards to the valuation problem” and there was no concern that the computer issue at BNY Mellon, the board's custodian, would affect the FSBA, said Dennis MacKee, spokesman.
Sources said one issue that needs to be resolved is who would make whole any funds that lost assets — BNY Mellon, SunGard or the individual fund managers —as a result of the software issue.
BNY Mellon would not comment on that issue; Kevin Heine, company spokesman, said only that the custodian has been concentrating on “meeting our clients' fund accounting needs and restoring the SunGard platform,” but he added that BNY Mellon would “continue to communicate with all of our clients to address any questions or concerns they may have.”
SunGard has been “focused on getting our client BNY Mellon back up and running,” said Michael Gormley, spokesman. The question of asset restoration “has not been a focus at all to this point.”