UK - Mercury Asset Management's Select team "did not have any preventative controls" on its fund managers' investments, the High Court heard yesterday.
John Richards, the manager of the Select team and Alistair Lennard’s superior, said: “We did not have any preventative controls other than the team discussing it before a fund manager took action.”
But Richards stressed that the MAM style allowed fund managers to use discretion in their investments and that their colleagues would warn each other of any potential pitfalls. Richards himself would also discuss portfolios with the fund managers in his charge.
Richards was responding to questions from Unilever’s barrister Jonathan Sumption QC on a MAM internal audit document from 1995 criticising the lack of controls on the Select team.
But Richards argued that the tone of the document was much stronger than he would have said at the time.
The note was written by a MAM trainee, believed to be in her early 20s, who left in 1997 to go to university.
Elsewhere in the proceedings, Mercury Asset Management fund manager Alistair Lennard denied he “hopped from sector to sector” in the 18-months prior to the start of the new Unilever mandate at the beginning of 1997.
Unilever’s barrister, Jonathan Sumption QC, claims MAM acted negligently by allowing Lennard to create a portfolio that carried too much risk.
Nearing the end of his third day in the witness box, Lennard was asked: “What you were doing in the 18 months before the inception of the new mandate in January 1997 was to hop from sector to sector; and you hopped from sectors like banks, that you thought would underperform, to sectors like property that you thought would outperform; do you agree?”
Lennard answered: “I was trying to add value in the portfolio. The themes were much more dominant, and the underlying dynamics of those businesses were much more important than the sector FTSE classifications.”
This was a reference back to earlier evidence in which he had said that stock selection was not based just on sectors but on the complex relationships between companies.
Sumption said: “I suggest that you did this without any regard for risk to your portfolio should your views about the merits of the different sectors prove to be wrong, because you regarded it as a very remote possibility that your views would be wrong, so high was your confidence?”
Lennard replied: “No. Over the course of my evidence, in the last few days, I have tried to show the correlationships between various companies, and in particular highlighting banks and property. These were well thought out investment decisions, which were done on the basis of being very aware of the risks inherent within the portfolio.”
After a barrage of questions, Sumption put to Lennard: “The result [of your portfolio construction] was that while your colleagues experienced only moderate underperformance, your portfolios achieved the distinction of underperforming for eight successive quarters by a margin which put them at the bottom of Mercury's range and at the bottom of the 1600 funds managed by the WM Company?”
Lennard reacted by blaming it on currency movements in the fourth quarter of 1996 and particularly “the impact of sterling”.
The case continues. Judgment is expected in the new year.
By Paul Sanderson
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