Risk Oversight Comes Under Fire in Unilever Trial

November 20, 2001 (PLANSPONSOR.com) - The risk levels of the £1 billion Unilever portfolio weren't monitored on a regular basis by the head of the equities team at Merrill Lynch Investment Mangers (MLIM), formerly Mercury Asset Management, according to testimony before the UK court.

In the £130 million negligence case MLIM, John Richards testified that since he was supervising the management of the £600 million UK equity portion of the portfolio only, he did not monitor the risk levels of the total £1 billion Unilever Superannuation Fund (USF) portfolio.

Risk Taking

According to a report in the Wall Street Journal, Richards testified that he did not recall whether he was shown Unilever total fund active risk figures between the fall of 1996 and May 1997.

Merrill had stated in court documents that it recorded total fund active risk levels for the fund starting in 1996, according to the newspaper. But Unilever’s lawyer questioned Merrill?s assertion that the overall pension fund was within safe risk levels, when Richards didn’t monitor the levels on a regular basis.

Merrill had also stated that the fund?s active risk levels had peaked at 3.8% – however, the UK equities portion had reached 6.7% at one point.

According to the Financial Times, Richards said he was aware of the risk levels run by Lennard in the Unilever Fund, noting that while he “watched Alistair particularly carefully” he concluded a high-risk strategy was his “natural style”.

Lagging the FTSE

In terms of Unilever?s contract with MLIM, the UK equities portfolio had to outperform the FTSE All-Share Index by 1% and not lag it by more than 3% for more than three consecutive quarters

But the UK equities portfolio dragged down the total pension fund, which underperformed its benchmark by 10.5% between January 1997 to March 1998.

– Camilla Klein  editors@plansponsor.com

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