Judge’s ruling spells trouble for Missouri pension’s lawsuit against Canadian firm

Steve Vockrodt
·3 min read

A Cole County Circuit Court judge said in an order Monday that the court system is not the place for Missouri’s largest pension fund to try to rewrite a contract that it entered into with a Canadian private equity fund.

Judge Jon Beetem denied the Missouri State Employees Retirement System’s request for a preliminary injunction against Catalyst Capital Group. MOSERS sought the preliminary injunction to keep Catalyst from declaring the $8 billion pension fund in default of its obligations if it didn’t fully fund its commitments to the Canadian firm.

Beetem’s opinion dealt a bruising defeat to MOSERS by raising repeated questions about whether the pension fund could ultimately succeed in its lawsuit. Beetem’s order said any harm that MOSERS claimed it would suffer without an injunction was mostly speculative and harm that the pension brought upon itself.

Catalyst, in a statement through spokesman Dan Gagnier, said the firm was pleased with Beetem’s ruling.

“We are particularly pleased that the Court’s decision affirms the fundamental terms of our partnership agreement, rejects all of MOSERS’ baseless and frivilous allegations of wrongdoing, and concludes that MOSERS did not demonstrate that it is likely to succeed on any of its claims,” Gagnier said in a statement to The Star.

A MOSERS spokesperson and an attorney representing the pension declined to comment.

MOSERS pays benefits to 51,000 retirees from Missouri government. One of a pension fund’s main methods for making money is placing investments and hoping for future returns. Government pensions have traditionally invested in safe, low yield investments like Treasury bonds, but years of low interest rates have pushed pensions toward riskier investments that potentially have higher yields like real estate and private equity.

MOSERS sued Catalyst last year, accusing the firm of mishandling its investments. Large portions of the filings in the case are redacted. And while Beetem has made efforts to make proceedings in the case open to the public, most of the hearings this year and last have taken place behind closed doors with both parties saying that the case involves sensitive business matters.

MOSERS’ overarching argument in its lawsuit is that Catalyst steered some of the pension’s early investments into a risky and ultimately unsuccessful distressed debt company based in Canada.

But MOSERS claimed it had a more pressing need that it asked Beetem to deal with: Keep Catalyst from issuing future capital calls and preventing them from declaring MOSERS in default if it didn’t meet a Catalyst capital call.

Capital calls are when an investment firm demands that an investor make good on an earlier commitment.

In the MOSERS case, it had committed to invest $100 million into what Catalyst called Fund V. So far, MOSERS has met only $60 million of that commitment.

If MOSERS was in default, Catalyst and the other investors in Fund V could cover MOSERS deficit — in this case, $40 million — and treat it like a loan to the pension fund.

Beetem considered MOSERS argument and concluded that the pension was asking the judge to enjoy the profits from its involvement in Fund V without having to fully fund its commitment.

“MOSERS can avoid the harms it complains about simply by complying with its capital call obligations,” Beetem said.

Beetem also said MOSERS couldn’t prove that it would be harmed if Catalyst made a capital call because when the pension put $15 million into Fund V in November, its investment immediately increased in value.

The MOSERS lawsuit carried with it some political intrigue. During a hearing earlier this year, MOSERS executive director Rhonda Stegmann expressed concern about Catalyst hiring Missouri lobbyist Richard McIntosh to influence key lawmakers and put pressure on MOSERS outside the confines of the lawsuit.

Beetem was unimpressed with that argument, saying in a footnote that he did not see anything inherently improper about hiring a lobbyist to contact a government agency like MOSERS.

“MOSERS’ decision to focus on this issue is indicative of the shaky substance of MOSERS’ claims,” Beetem wrote.