How did Gartmore Fund Managers come to lose £1bn worth of Unilever’s pensions business? When the £3.5bn Unilever pension fund announced last month that it was withdrawing its £1bn mandate from Gartmore and appointing new external managers instead, shock waves went round the City of London.

According to Watson Wyatt’s Peter Ludvik: “If a client has already appointed a top fund manager he would not give the benefit of the doubt to another without good reason. If in doubt, he will stay with his current manager.”

So why has Unilever decided to drop Gartmore and give the benefit of the doubt instead to others?

Is it that Gartmore were not performing so well? According to Ludvik: “Some fund managers who perform well at the outset certainly do not always perform so well two or three years later. Some houses just lose it, either because they’ve taken too much business, or because people leave. One day everybody wants them but not necessarily the next day. You would expect every external manager to slip from the top spot from time to time.”

John Colban of Sedgwick Noble Lowndes takes the view that clients get shot of external fund managers “because they are disappointed with their performance”

He says: “Performance is usually the driver. It’s this which disappoints the client in the first place. Of course, if any asset liability study results in a new liability profile for a pension fund-perhaps moving to fixed-interest from balanced funds- that can be a reason too. Extreme volatility can also go against an external fund manager.”

Another consultant suggests that if Gartmore had not been acquired by NatWest they might have kept it. “It’s hard to say, maybe Unilever didn’t like NatWest.”

On the other hand, Mike Faulkner of Towers Perrin points out that: “Some cli-ents prefer a fund management company to be owned by a bank because it has deep pockets and can offer more security.” But he argues that if there’s been a management change, this, too, can be a reason to look at other external managers “If it is felt that the change will impact on the client- on the ability of the fund manager to continue to deliver investment performance in the future, this may be a reason to consider an alternative manager.”

Gartmore underwent a change of management last year when it was bought by NatWest Bank. Since being bought, NatWest Gartmore has won £1bn worth of new business.

Some consultants say that Gartmore has been “underperforming” in recent years. According to one: “It was performing exceptionally well ten years ago when it was smaller and growing fast. But it has changed processes in the last couple of years and acquired a bigger management team. This change has been dealt to it by the growth of its own business.”

Predictably, Unilever are not saying why they have parted company with Gartmore and the latter is no less tight-lipped. All Unilever’s chief investment officer, Wendy Mayall, is saying is: “Asset liability modelling was used to assist trustees in de-termining the fund’s long term investment strategy.” This was part of a detailed review of the superannuation fund’s £3.5bn investment management structure and it has resulted in the implementation of a new structure, the primary focus of which is to strengthen overseas equities expertise. In consequence, Capital International and JP Morgan have been mandated to manage some £500m each of Unilever’s specialist overseas equities, whilst Mercury Asset Management and Schroders are appointed, at approximately £1.2bn each, to manage multi-asset mandates.

Clearly, Unilever’s internal actuaries have been putting their thinking caps on in a big way recently - they do not use external consultants.

Top pension consultants have a ready profile and style analysis of the characteristics of the top contenders for pension fund business. One consultant says: “The overstrength is in UK balanced portfolios. When a pension fund decides on more than one manager, it may try to get some style diversification by putting in a growth manager alongside a value manager. If you’re shopping for growth, it’s J P Morgan, whereas if you’re shopping for value it’s say, PDFM, or Schroder which has balance as well as value. It may be that a purely balanced manager no longer fits.”