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Public Sector Pension Investment Board, Saba Capital settle suit over bond valuations

Public Sector Pension Investment Board, Montreal, and hedge fund firm Saba Capital Management settled a lawsuit in which PSP claimed Saba had falsified the value of bond holdings before the C$112 billion ($83.8 billion) pension fund sought to redeem a $500 million investment.

Spokesmen for Saba and PSP Investments, which manages the pension fund's assets, said in a joint statement, "The parties ... have resolved this matter as a commercial dispute involving a good faith disagreement over the valuation of two highly illiquid corporate bonds."

Details of the settlement were not disclosed.

According to court documents filed in New York Supreme Court, PSP in September 2015 filed suit against Saba, claiming the firm “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, 2015.

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.”