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Board discusses XTP forensic-recovery contract amid questions over co-mingled assets and fee split
Summary
Trustees debated terms of a proposed XTP forensic-recovery contract after staff redlined a draft seeking to limit recoveries to CRS—assets; key issues include whether XTP's proposed 50% contingency fee applies to recovered dollars system-wide when assets are co-mingled and whether custody separations are needed to avoid cross-system subsidies.
Staff briefed trustees on ongoing negotiations with a third-party forensic-recovery vendor (XTP) that responded to the system—RFP offering a contingency split (50% of recoveries) for identified savings. Legal staff returned a redlined draft that limited the agreement to the CS portion of assets, but XTP and board members debated practical execution when manager holdings are co-mingled across multiple public funds.
Ed Owens said the central question is whether the board treats XTP as a risk-mitigation vendor or a revenue-generation partner. "We should want to take that off the table, provide the forensic audit and then maybe at a later date have a conversation with our brethren at K about what the equitable thing to do would be on the money that came back into our system," he said, advocating proceeding to get the forensic work done. Other trustees urged caution, questioned whether CRS should subsidize recoveries that benefit other systems, and suggested options such as: insist XTP pursue only holdings where CRS owns a clear majority, negotiate a different split, or require custodial separation of assets to ensure clean allocation of recoveries. Legal and investment staff said they had redlined initial contracts and were awaiting XTP's response; trustees asked IC and staff to continue negotiations and bring a revised contract back for committee review.
