UK - Thursday morning in the High Court saw Wendy Mayall testify on the events in May 1997 that led to the breakdown of relations between the Unilever Superannuation Fund and Mercury Asset Management (MAM).
In late May, the chief investment officer of the fund, Mayall, received a report from USF’s consultants Frank Russell demonstrating that the fund was underperforming the benchmarks set by Unilever for the first quarter of 1997. This followed similar underperformance statistics for the last quarter of 1996.
In particular the UK equity portion, which is the part of the fund that Unilever is seeking £130m compensation for, had underperformed by 1.9%.
It also highlighted that the active risk of the UK equity portion of the portfolio, was 5.7%compared to 3.5% for the whole fund according to Mercury’s modelling system Barra.
Mayall recalled that co-director at MAM Carol Galley “was taken aback” by these figures when she had discovered them earlier in the month when Mayall had also heard about them from Frank Russell’s draft reports.
Galley blamed this performance on the unique strength of sterling and the continuous strength of shares in the banking sector that MAM had not invested in because it believed manufacturing shares would offer better gains.
But Mayall also argued that Galley admitted to mismanagement of the portfolio. She said: “I think she was saying ‘we have failed to do something and we will now do it.’
Mayall, when questioned by Merrill Lynch Investment Management barrister Ian Glick QC, the firm which took over MAM, also revealed that Galley told her in a meeting that she had decided to replace Alistair Lennard as fund manager in an attempt to bring down the risk in the UK equity portfolio. Subsequently, Paul Harwood took over management of it.
At this point USF and MAM decided on a reconstruction of the portfolio that would take, according to MAM, between six and 12 months in order to reduce the risk.
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