Public Sector Pension Investment Board, Montreal, filed a lawsuit in New York State Supreme Court against hedge fund firm Saba Capital Management, accusing it of falsifying the value of bond holdings before the C$112 billion ($84.7 billion) pension fund sought to redeem a $500 million investment.
According to court documents, PSP claimed Saba “improperly manipulated the values” of bond assets within the Saba Offshore Feeder Fund “with the objective of artificially depressing the amount to be paid to the board” when PSP asked to redeem its full investment in the fund on March 31.
Saba agreed to the full redemption, but a month later PSP claimed Saba “abruptly marked the bonds back up to the values they recorded immediately prior to the redemption … to stanch further investor defections from the fund and to directly benefit themselves.”
According to the lawsuit, the Saba Offshore Feeder Fund had net assets of $1.5 billion in the summer of 2014 vs. $3.9 billion in March 2012. It claimed the losses were “unrelated to any market development that could or should have adversely affected the fund's performance had the fund been properly managed.”
Boaz Weinstein, Saba founder and chief investment officer, said in an e-mailed statement that Saba initiated an “industry standard auction process” to determine the value of the bonds in question and did not use the process to price them at the time of PSP’s redemption and then immediately change the pricing the following month.
“In fact, we continued to use the auction to price those (and other) bonds in the second and third quarters of 2015,” Mr. Weinstein said. “PSP could have corrected its mistake with a one-minute phone call to me. ... The suggestion that I manipulated the valuation of two bonds for my personal gain is utter nonsense.”
Mark Boutet, PSP spokesman, could not be reached for comment by press time.
