UK - The High Court heard on Monday that Unilever trustees were unaware of plans to change the benchmark against which Mercury Asset Management (MAM) would be assessed until after it became part of the contract.
This meant trustees were unaware of the greater risk the fund was being put under.
Unilever alleges MAM, now trading as Merrill Lynch Investment Managers (MLIM), 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%.
Ian Glick QC, the barrister representing MLIM, while questioning former chairman of the Unilever Superannuation Fund Hugh Stirk, said: “By the end of 1997 trustees were aware of benchmarks. But they were not aware of it at the end of 1996. The only trustee who knew about it was you.”
Stirk said this was correct. Previously, he had also admitted that the trustees did not discuss the -3% downside risk performance benchmark at a December 1996 trustees meeting - even though Stirk was aware that it was due to come into effect in January 1997.
The revised mandate was eventually signed towards the end of January 1997 and was backdated to the 1st of that month.
Stirk also conceded that the stated target of 1% over the FTSE All Share index would prove “more challenging” than the previous target of the fund being in the top quartile against the WM2000 index.
MLIM argues that this means Stirk was aware that greater risk would be involved in trying to meet the specified targets.
MLIM, which bought Mercury Asset Management in December 1997, says Unilever’s trustees should have been notified by Stirk of the greater risk that setting these benchmarks was putting Mercury, and the UK equity portion of Unilever’s portfolio, under.
Glick said there was no documentary evidence of the trustees being made aware of the revised benchmarks throughout 1997.
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