Compliance December 10, 2001

Landmark Pension Suit Looms

October 12, 2001 (PLANSPONSOR.com) - Failing a last minute respite, the long anticipated lawsuit between one of the UK's largest pension funds and a leading fund manager could finally come to trial next week.

Reported by

Nevin E. Adams

The suit, initially presented in October 1999, pits Merrill Lynch Investment Managers (MLIM) against the £4bn ($5.8 billion) Unilever Superannuation Fund (USF). The pension fund is suing MLIM for £130m for alleged negligence in managing £1bn of its investments.

A settlement has been widely anticipated, but USF is said to be holding out for something near £75m, while MLIM has not budged from the £20m it is understood to have offered earlier in the case, according to the Financial Times.

Contract Terms

Essentially, USF says that its contract, renewed in January 1997 with Mercury Asset Management (acquired in November 1997 by Merrill Lynch, and subsequently renamed MLIM), stipulated that the investment portfolio would not dip more than 3% below a specially tailored benchmark during its first year.

However, according to USF, the fund actually underperformed by 8% – and by the time the pension fund fired MLIM in March 1998, the underperformance had dipped even lower, to 10.5%.

For its part, MLIM has said that the contract terms – a renewal of a decade-long relationship – was not a guarantee or a stop-loss but a target.

New Players

New players at both parties could have contributed to the failure to reach agreement sooner – but may yet offer new hope for a settlement. Rosemary Berkery has just been appointed as the new head of Merrill Lynch’s legal department, while Michael Samuel, Unilever’s UK finance director, has just this week been appointed acting chairman of trustees following the sudden illness (a suspected heart attack) of chairman Richard Greenhalgh.