UK - Pension lawyers are forecasting a raft of scheme claims against fund managers if Unilever's High Court action against Merrill Lynch Investment Managers is successful.
Burges Salmon pensions partner Tim Illston said trustees will already be looking at their management agreements to explore the possibility of a claim.
Illston said: “Virtually every pension scheme has been affected by the fall in the market and a majority of trustees will be thinking of ways they can make up the shortfall.”
The J. Sainsbury Pension Scheme is one of those considering action. Pension manager Geof Pearson said: “If Unilever win their case, there is likely to be similar claims.”
McDermott, Will & Emery pensions partner Steven Hull said that if Unilever was to win, it would lead to a change in contractual agreements between trustees and fund managers.
He said: “Investment managers may feel they have to be more protective under the terms which they are appointed to make benchmarks. They may be required to report significant underperformance at least monthly, if not more. Investment managers will also seek more flexible criteria for benchmarks, which will open up further competition.”
Unilever is seeking £130m in compensation alleging that former Mercury fund manager Alistair Lennard took excessive risks which led to an underperformance greater than the contractual agreement.
In his opening statement at the High Court, Unilever’s barrister Jonathan Sumption QC said: “Mr Lennard constructed a portfolio that was strongly sensitive to his own judgments and the scale of its performance points at something wrong with the construction of it.”
Lennard managed the equity portion that amounted to 65pc of the £1bn mandate. In 1995 he sold out of banks and invested 45pc into industrial stocks.
The portfolio was subsequently the worst performing out of 1600 institutional funds in 1997 and 1998. The mandate was eventually terminated in March 1998.
In response, Merrill Lynch – which bought Mercury for £3.1bn in December 1997 – said: “We were on the wrong side of some highly unusual and persistent market factors in 1997. With the benefit of hindsight anyone can make the right calls, but that is a very different thing from saying the portfolio was negligently constructed, or constructed without proper checks and balances.”
The firm argued that Mercury Asset Management still achieved 20.65pc growth for Unilever Superannuation Fund of around £200m in the period of the claim.
The case is expected to last between six to eight weeks.
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