Compliance May 10, 2002

Merrill Fires Back in UK Pension Suit

October 17, 2001(PLANSPONSOR.com) - Merrill Lynch rejected a negligence claim by the UK pension fund of consumer giant Unilever, saying the fund knew it was buying an investment approach that could be volatile, Reuters reports.

Reported by

Camilla Klein

In a lawsuit that could shake up the UK fund management industry, the Unilever Superannuation Fund (USF) is suing Mercury Asset Management, acquired by Merrill in 1997.

USF claims that Mercury negligently allowed its £1 billion portfolio to under perform its benchmark index by 10.5% between January 1997 and March 1998, breaching a contract that at the worst it should not under perform by more than 3%.

Merrill Rejects Claim

In opening arguments, Merrill maintained that while it accepted the portfolio had performed badly, it denied that its lack of risk control contributed to the under performance and that Mercury exercised appropriate skill and care in carrying out its mandate.

Merrill?s lawyers also claimed that the USF was fully aware of the concentrated portfolios and sector bets that Mercury was taking. It was further argued that if the pension fund was dissatisfied with the way Mercury had constructed its portfolio, it should have complained, or not employed Mercury to manage the mandate in the first place.

Mercury, fired by the USF in March 1998, blames a combination of market factors for its failure to meet the scheme’s investment targets.

Merrill is counter suing for unpaid fees for over £ 580,000 plus interest.