UK - The fund manager who took over from Alistair Lennard said in the High Court that he would not have run up a portfolio as concentrated as that created by Lennard.
Paul Harwood, who at the time was the head of the Specialist team that ran mandates with higher outperformance levels than the Select team Lennard was part of, was drafted in during May 1997 to take over management of the Unilever UK equity portfolio.
Unilever QC Jonathan Sumption asked Harwood: “I take it you would not, yourself, if running a portfolio with this mandate have built up an overweight position in general industrials of the size that Mr Lennard did by the time that you took it over?”
Harwood answered: “I think that is correct.”
When Harwood took over the portfolio, general industrial stocks took up 40% of its total.
Sumption asked: “One reason why you would not have done it this way, and an important reason why you would not have done it this way, is that you would have regarded an overweight of that order as being inconsistent with prudent risk management for a mandate with a plus 1% outperformance target. That would have been your view, would it not?”
Harwood said: “Personally, yes.”
Throughout the remainder of 1997, Harwood took measures to reduce the amount of general industrial stocks in the portfolio. By the end of the year the overweight had come down to 15.4%.
Harwood also said that he would have expected a portfolio managed in the higher risk Specialist team to contain 50 stocks. But the portfolio he inherited contained a figure that Sumption said was “41 or 42”.
Sumption then asked: “So that it is correct to say, is it not, that you inherited a portfolio in which, again, the degree of concentration was characteristic of portfolios with a relatively high outperformance target, such as the Specialist team was used to running?”
Harwood answered: “On that simple measure of concentration, that is correct.”
Unilever alleges Mercury Asset Management (MAM), which MLIM bought for £3.1bn in 1997, acted negligently by failing to operate adequate risk controls in the running of £1bn of its assets in 1997 and 1998. It is claiming £130m. MAM’s return in the 15 month period under review was absolute growth of 20.65%, worth £200m. In the same period the FTSE All Share gained 31%.
The case continues.
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