The USF, which holds assets for 110,000 participants, is suing Mercury Asset Management, now owned by Merrill Lynch, for £130 million, claiming the firm was negligent in the management of a £1 billion mandate it ran for the pension fund.
The UK suit charges that Mercury ignored an agreed downside risk tolerance set when the fund restructured a mandate it already ran, and underperformed its benchmark by 10.5% between January 1997 and March 1998 when it was fired.
Former USF trustee Hugh Stirk, giving testimony, said that pension fund trustees were neither experts in monitoring performance, nor was it their job to measure day-to-day risk or decide how many stocks to buy.
Stirk testified that Merrill Lynch Investment Managers had a good track record and the pension fund trustees believed the firm’s former fund manager Alistair Lennard was in control, stating that the manager always gave a plausible reason for his strategy.
He denied that measuring risk was the responsibility of the pension fund and noted that while Unilever’s pension fund trustees were aware of Mercury’s house style and its concentration on a limited number of UK equities, they had not been aware that investing in so few stocks would be so risky.
Merrill Counter Sues
Merrill denies negligence, blaming unpredictable market forces for its failure to meet targets. The group maintains that it grew assets by over £200 million over the period and is counter-suing for £580,000 plus interest in unpaid fees.
Mercury’s then senior vice-chairman Carol Galley will appear as witness in the week of November 5, followed by Unilever’s chief investment officer Wendy Mayall. The trial began on October 15 and is expected to last two months.
– Camilla Klein firstname.lastname@example.org
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