USF may not have 'sufficiently' monitored Mercury

UK – The Unilever Superannuation Fund (USF) may not have sufficiently monitored the performance of its investment portfolios, nor considered what would happen in the likelihood that managers would underperform over a longer period than outlined in their manager agreement, it was alleged in the high court today, in the second week of the £130m (e210m) trial between USF and Merrill Lynch Investment Managers (MLIM).

Wendy Mayall, chief investment officer of USF, in the witness box to defend the USF decision to sue MLIM claiming negligence by Mercury Asset Management (now owned by MLIM) in the management of its assets between January 1, 1997 and March 31, 1998, was asked by Ian Glick Q.C. – acting on behalf of MLIM, whether one of the objectives of the fund at the time was the need to improve the monitoring of the fund’s managers.

Answering Yes, Mayall was then asked about the consideration of a performance report provided by Mercury at the time, with Glick noting: “If you were not going to take a look at this in any great detail, who was?”

Mayall replied: “At the point that this report was received we were entering a completely new era which involved a very significant amount of work to negotiate four new contracts and bring on board two new managers, fire another, do the transition. It did not seem
a particularly productive exercise, at this moment in time, to start suspecting managers of not…, of anything.”

She also noted that at the time she had not considered whether Mercury was taking too much risk with its investments.

Establishing that Mercury’s investment objectives had been renegotiated in the form of a plus one per cent outperformance objective, with a proviso that in normal circumstances the return would be expected to be no more than three per cent below the benchmark in any four successive calendar quarters, Glick asked whether Mayall had considered the question of how often this might happen.

Mayall replied: “No. I do not think we did.”

The case is expected to run for a further four to five weeks.

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