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Lennard: Mercury

UK – Mercury Asset Management (MAM) had been “under pressure” to boost performance after several years of flat returns when Carol Galley appointed a 27 year-old fund manager, Alistair Lennard, to manage the £600m USF UK equity portfolio, the high court was told today (November 14).

In his first full day of questioning, Alistair Lennard, portfolio manager of the £600m UK equity portfolio for the Unilever Superannuation Fund (USF) during the time that USF is claiming negligence, was asked by USF Q.C. Jonathan Sumption, why risk levels in the USF portfolio had risen during his tenure, despite there being “no change” in the client’s appetite for risk.

Lennard answered that he felt the level of risk taken in the portfolio had been appropriate, adding that his appointment by Carol Galley had been made with his style of investment in mind.
“She would have known, in broad terms, what the impact of giving that portfolio to me would have been, and that is perfectly true. This was a performance-orientated client, where the rolling three year numbers had gone negative. I understand that, you know, Carol was under a little bit of pressure on that score; and I knew that the performance had to improve. Against that background, I thought there was probably at the bottom line level an insufficient amount of risk being taken to give us a fighting chance of achieving that top quartile. I guess that was part of her thinking in putting me on the account.”

In the High Court yesterday, Lennard said that between 1991 and 1993 the USF portfolio under Galley’s guidance had been returning figures that were ”not even achieving break-even”, let alone achieving the upper quartile performance that USF was seeking.

He added that one of the reasons Galley’s performance may have been flat was the increasing time she was spending “managing the business” as opposed to managing the portfolio.

Lennard was then grilled about the stock concentration in his portfolio and his attitudes to risk, with Sumption pursuing an earlier line of argument that Lennard had been something of a “wildcard” in the management of the portfolio.

Examining Lennard’s stock decisions, Sumption put it to the former Mercury fund manager that risk did not figure in his investment reasoning.
“You never considered, I suggest, the cumulative impact of all these individual buy and sell decisions on the overall level of risk in the portfolio?”

Rebutting Sumption’s claim, Lennard explained his approach to portfolio construction “You look at portfolios as a whole; and I think that what I am trying to explain is just to the extent at which I did look at the portfolio as a whole. I did not just look at the banking sector, or, you know, the alcoholic beverages sector or whatever. I looked at how it all fitted together. A portfolio is very complex because of these co-relationships.”

USF is suing Merrill Lynch Investment Managers for £130m (e210m) alleging that MAM (now part of MLIM) negligently took too much risk when managing £1bn for the fund between January 1, 1997 and March 31, 1998.
MLIM contests the claim.

The case continues.

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