UK – Unilever and Merrill Lynch Investment Managers (MLIM) re-entered the high court today (Oct 25) for the second week of legal action, following the Unilever Superannuation fund’s (USF) decision to sue MLIM for £130m alleging negligence in the management of its assets between January 1, 1997 and March 31, 1998.
Hugh Stirk, chairman of the USF trustee board at the time of the underperformance by Mercury Asset Management (MAM) – now part of Merrill Lynch, took to the witness stand to be cross-examined by Ian Glick Q.C. – acting on behalf of MLIM.
Glick pointed out that Mercury had been unique in being the only investment manager that USF had retained during the nine years from 1987 to 1996 – prior to Mercury’s sacking in 1997 after underperformance had increased to 10.5% over five quarters since reappointment in January 1997.
He added that MAM was also USF’s top performing manager in the nine years prior to 1997, out of a total of six other managers over the period.
Concerning Mercury’s performance up until 1996, Stirk acknowledged that the fund had been “well pleased” with the results.
Glick’s line of questioning focused on the expectations of the USF fund. Stirk accepted that the fund had a “preference” for being a top quartile performer in the WM universe of the country’s top 50 pension funds.
Glick also asked whether there was a “considered position” within USF on the timespan for underperformance of a manager before contracts were terminated.
Stirk replied that this depended on a number of circumstances including market conditions, the performance of the other managers in the fund and the details of any contract drawn up.
Glick then focused on whether USF trustees were informed by the Unilever Pensions Investments Limited (UPIL) – the fund’s manager, about any “stupid mistakes” that might have occurred in the stock selection of the fund’s investment managers.
Stirk replied: “Yes, if there was anything untoward compared to the manager’s house style then we were told and this was debated.”
The case is expected to continue for a further five to six weeks.
MAM was re-appointed as one of USF’s investment managers under new contractual terms from 1 January 1997, having previously managed USF portfolios for some 10 years, to run securities then worth approximately £1,090m.
According to USF, during the first four quarters of the new contract, MAM’s overall portfolio under-performed an agreed downside tolerance stating the return was expected to be no more than 3% below the benchmark for any four successive calendar quarters.
USF trustees terminated MAM’s contract in March 1998, by which time the under performance had increased to 10.5% over the five quarters since reappointment.