The case saw USF suing MLIM for £130 million, claiming that the asset manager was negligent in its management of the pension fund’s £1 billion mandate after it underperformed its benchmark by 10.5% between January 1997 and March 1998.
Without admitting guilt, MLIM paid Unilever an undisclosed sum – estimated to be around £70 million – to settle the case that threatened to change the way asset managers and pension trustees do business.
But not before weeks of testimony from both sides turned water-cooler conversations to the issues of risk controls, investment guidelines, performance measures, and ultimately, responsibility.
The £70 million settlement is “unsettling” for fund managers. “While in the past, fund managers who underperformed their targets were threatened with the termination of their contracts, now they’re threatened with lawsuits,” one fund manager told PLANSPONSOR.com.
The case has also raised questions for plan sponsors about how much they should know about what their money managers are doing – and what sort of risks they are taking.
On the stand Wendy Mayall, USF’s chief investment officer, reportedly admitted to being unfamiliar with the concept of risk, and testified that she did not regard it as her job to tell fund managers how to do their job.
How much should pension fund trustees know about risk? “A lot more than they do,” says Ethan Burman, CEO of Risk Metrics. “This case should put more pressure on plan sponsors to understand exactly how their money is managed, and that’s a good thing.”
For both plan sponsors and their money managers, the case will no doubt ensure that closer attention is paid to how contracts and investment guidelines are written, and how performance targets are measured.