| Unilever v Merrill Lynch - Legal action looms over pension fund under-performance claim |
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| 25/09/2001 | |
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by Nat Mankelow Unilever's pension fund is going head-to-head with Merrill Lynch Investment Managers (MLIM) in a High Court case next month over claims by the Anglo-Dutch foods and consumer products group that its former fund manager "wrongly invested" part of its £5bn pension fund during 1997-8. As result of MLIM's advice, the pension fund experienced significant losses, claims Unilever. About £1.2bn, including a significant slice of Unilever's UK equities mandate, under-performed an unidentified benchmark by 10.5 per cent, versus a 'contractual' limit of 3 per cent. The legal interpretation of the contract between Unilever and MLIM will play a key role in the conclusions made by the judge, Mr Justice Colman, claims industry observers. Unilever is seeking more than £110m in damages. Added value, but not for Unilever - claims "'The UK equity portfolio selected by Mercury was far too risky for the agreed investment mandate," claims Richard Greenhalgh, chairman of Unilever's pension fund board of trustees. It is alleged that investment advice from Mercury Asset Management (MAM), now incorporated within Merrill Lynch, generated "severe under-performance" for Unilever as a result of being overweight in 'value stocks' such as British Steel, but underweight in the growth stocks of then high-rising technology and telecom firms. The case, launched in 1999 and expected to start on October 15, has cost the Anglo-Dutch firm £125m in preparatory fees and advice. The National Association of Pension Funds has warned that an increase in litigation is likely to increase costs and lower the returns. Pensions consultant Bacon & Woodrow, who includes Unilever amongst its clients, told bfinance it was unaware of any other occasion when a UK corporate pension fund had taken legal action against a fund manager based on poor performance. Legal action could have been avoided Yet according to one industry expert, costly and elongated legal action could have been avoided if a query over fees had been settled between Unilever and Carol Galley, then vice-chairwoman of Mercury Asset Management. "Galley and MAM's intransigence over the fees they expected to receive – despite returns underperforming the benchmark – meant the case would inevitably go to court." Tony Dye, former investment officer at Phillips & Drew and now head of Dye Asset Management, has been called by MLIM as an expert witness. Dye has long been a champion of value investing and is likely to defend MLIM's investment stance during what was a bullish time for growth stocks. Dye's bearish stance during his tenure at Philips & Drew has been widely criticised for producing fund losses worth billions. Unilever's expert witnesses include Dugald Eadie and Gordon Bagot, co-founders of performance measurer WM, plus pensions academic Alan Timmerman. |
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