UK - Carol Galley admitted that the portfolio handled by Alistair Lennard was one of the most "divergent" from the benchmark that she had ever seen, in a fourth day of courtroom grilling.
As part of the cross-examination by Unilever barrister Jonathan Sumption QC, Mr Justice Colman asked: “So would the position be that you had no previous experience of a similar order of magnitude of sector divergence, or that you did have previous experience of a similar order of magnitude of sector divergence?”
Galley replied: “I think that this [Unilever] was one of the most focused portfolios that I had seen.”
Colman then asked: “Does ‘focused’ mean divergent?”
Galley then said: “Divergent from the benchmark, yes.”
Sumption is trying to prove that Mercury Asset Management - which was bought by Merrill Lynch in December 1997 - is guilty of negligently managing the Unilever mandate by running a portfolio that was too concentrated compared to the FTSE-All Share Index.
MAM was contracted by Unilever from the beginning of 1997 to stick to a performance benchmark of +1% outperformance over the index, with no underperformance over 3% for four successive quarters.
Even though the evidence related to November/December 1996, Sumption is arguing that the portfolio was too concentrated at this period and no effort was made to properly reconstruct it when the new benchmark was introduced.
Galley admitted: “We did not think it needed to be restructured to meet the new objectives. But that does not mean that we did not think about it and look at the portfolio; and we made that judgment.”
She also said that she believed the underperformance of the portfolio was down to market conditions. Galley added: “[It was] entirely due to equities, and the main reason was the unforeseen strength of Sterling versus the Deutschemark, that is right.”
But under pressure from Sumption she also said: “I think the market did affect the degree of underperformance that befell Mr Lennard's portfolios. In other market circumstances, I think he would have underperformed but not to the same degree.”
Alistair Lennard is expected to be next to take the stand once Galley’s cross-examination finishes.
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