UK - Alistair Lennard made mistakes of both timing and scale in constructing the UK equity portion of the Unilever portfolio according to Paul Harwood.
Harwood, who replaced Lennard as fund manager in May 1997, was asked by Unilever barrister Jonathan Sumption QC last week: “Mr Lennard undoubtedly made mistakes of timing. Would you not agree that the main reason for his underperformance was not the timing of his positions but their scale, which is why other people did not underperform so much?”
Harwood replied: “Well, by definition, I think that is going to be true, over short periods.”
Sumption had earlier quizzed Harwood on whether he believed Lennard had taken too much risk by selling completely Unilever’s holdings in the banking sector.
Sumption pointed out that in the Specialist team, which ran mandates for Mercury that sought better performance than those in the Select team that Lennard was part of, the lowest weighting anybody had in banks in June 1997 was 4.2%.
Harwood believed like Lennard that banks were overvalued at the time. But Sumption asked: “Since you, and by and large your team, took the view that bank values were too high, why did you not sell all your bank shares?”
Harwood answered: “Because there were banks which had some prospects of performing, although obviously we expected the sector to underperform.”
Sumption also asked if Harwood would not have sold out of banks completely because it was not consistent with prudent risk management.Harwood said: “All fund managers have their own way of managing money. My team's view and my view would be that at that time you should have been holding some banks.”
The Unilever barrister then said: “For risk management reasons, among others?”
To which Harwood replied: “Amongst others, yes.”
Meanwhile Merrill Lynch Investment Managers director of Transition Investment Management Team Sarah Whatling, who helped to reorganise the Unilever Superannuation Fund in late 1996, also gave evidence on the costs involved in this process.
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%.
By Paul Sanderson
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