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USF didn't 'second-guess' Mercury, says CIO Mayall

UK – The Unilever Superannuation Fund (USF) did not know about the technical level of risk involved in the investment of a £1bn portfolio by Mercury Asset Management (MAM) and could not be expected to “second-guess” the advice of the investment manager, Wendy Mayall CIO of USF today (Nov 1) told the high court on day nine of the trial between USF and Merrill Lynch Investment Managers (MLIM).

Under continued cross-examination by Ian Glick Q.C. – acting for MLIM, it was suggested to Mayall that the investment team at USF were not just “passive participants” in the relationship with managers investing the fund’s assets.

Mayall replied: “As I say, I have also said along the way that it is extremely dangerous territory, if you like, for the client to stray into the investment management function.”
She added that while she considered the advice being given by Mercury as “fairly clearly and rationally” presented, the fund was “careful” not to get involved in giving views on the investment management itself , adding: “then you get some very murky areas about who is accountable for what.”

Mayall recounted her interpretation of the way the restructured investment agreement had been reached between the two parties: “In October (1996) we had been sent a letter by_MAM telling us that nobody is encouraged or rewarded for taking excessive risks. We MAM are very good at managing risk. Then we have the request for the –3 (downside tolerance) and we agree to that, then life goes on. We did not then operate in a world where we were interested in whether having been through the process we could trust the other party to do it and second guessing them. It was just not the way we operated.”

Glick then asked Mayall whether this meant that the fund did not “second-guess apparently rationale and sensible advice?”

Mayall answered: “If…well, no, not while we employ that manager, no.”

USF is suing MLIM 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 and the case is expected to continue for a further four to five weeks.

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