Judge Says Unilever Targets "Nebulous"
In a case that goes to the heart of whether fund managers must pay for losing money, Unilever Superannuation Fund (USF) claims that Mercury, now owned by Merrill Lynch, ignored its own risk management policies and was negligent in the management of some £1 billion in assets between January 1997 and March 1998.
USF claims that Merrill underperformed its benchmark by 10.5% between January 1997 and March 1998 when it was fired.
In its £130 million suit, the pension fund further claims that Mercury breached the terms of a contract with a performance target of outperforming a benchmark by 1%, but not lagging by more than 3%.
Counter Suit
Merrill does not dispute the underperformance but denies negligence, blaming unpredictable markets for its failure to meet targets. The group claims that it made USF over £200 million during the period, and is countersuing for £580,000 plus interest in unpaid fees.
Merrill?s lawyers submitted that Mercury was not given binding targets when USF restructured a £1 billion pound mandate, nor had the pension fund trustees discussed the issue of underperformance targets that Unilever claims it set following the restructuring.
Nebulous
“Under the asset management agreement, then, the concept of a target was a pretty nebulous one, was it not?’ the judge said.
Merrill’s lawyers argued that their was no mention of any downside tolerance targets in manuscripts of meetings of pension fund trustees, and questioned whether the issue of downside tolerance was regarded as significant enough to be discussed at these meetings.
Hugh Stirk, a former member of the USF Board of Trustees answered that he did not recall any specific discussion and had not thought it necessary. He admitted that there was a lack of clarity in the contractual obligation.
The court case highlights the degree of freedom fund managers have in running client cash and their accountability if things go wrong and could lead to greater transparency.
– Camilla Klein editors@plansponsor.com
Other Highlights from the Ongoing Trial:
Unilever Trustee Says Managers Should Monitor Risk
Merrill Faults Bad Choices, Not Negligence in Unilever Case