UK - An "uncomfortable" Carol Galley, co-chairman of Merrill Lynch Investment Mangers in London, faced more tough questions on Tuesday as she took the witness stand for second time in the landmark Unilever versus Merrill case.
Galley - once known as the City’s Ice Maiden - appeared to buckling under pressure when she admitted how she now regretted her move to delay telling Unilever when management of the portfolio had changed hands to a junior fund manager.
Unilever alleges that Mercury Asset Management, which was acquired by MLIM in 1997, failed to bring in adequate risk controls in the running of £1bn of its assets between 1997 and 1998. MAM’s return during the period was absolute growth of 20.65%; underperforming the FTSE All Share index by just under 11%. The Anglo-Dutch conglomerate is claiming £130m.
MAM was called in as fund manager to the Unilever Superannuation Fund in 1987. In 1993 MAM transferred its portfolio management for the fund from Galley to Alistair Lennard.
Lennard’s appointment is crucial to the case since he adopted a higher concentration of industrials and cyclicals in the equity portfolio - which made up 65% of the total mandate - leading to what Unilever alleged was excessive risk taking and to an underperformance exceeding a contractual 3% tolerance.
At times Jonathan Sumption QC representing Unilever complained that Galley was not answering his questions directly, to which she replied that she wished to place them in the context. But Galley acknowledged that Lennard’s appointment was significant.
Sumption asked Galley why she had not told Unilever of Lennard’s arrival until 1995, to which she replied “I wish I had told them earlier.”
Sumption pressed the witness on how she could be fully responsible for the fund a “part-time basis” once the portfolio had gone to junior Lennard. Galley said earlier that she still considered herself to have “full responsibility” for the portfolio on this basis. Her reply to Sumption was: “That was the distinction I made at the time.”
She added: “I am feeling uncomfortable that it is making us [MLIM) look as though we are not being straightforward. But in terms of looking after my clients assets, I don’t have any concerns about that.”
Galley’s cross-examination is expected to continue into next week.
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