UK - Unilever claimed in the High Court yesterday it has documentary evidence that Alistair Lennard, the MLIM fund manager responsible for managing part of its £5bn pension portfolio, admitted negligence in the way he handled the money.
Unilever alleges Merrill Lynch Investment Managers (MLIM), then trading as Mercury Asset Management, acted negligently by failing to operate adequate risk controls in the running of its assets in 1997.
Unilever claims Lennard was aiming at outperformance higher than the 1% specified in its contract, which also allowed for underperformance of 3%. Typically, specialist risk will be twice as high as the outperformance it aims for.
By the end of 1996 Lennard had underperformed the FTSE All Share by 5.5%. By December 1996, 96.2% of the portfolio’s risk profile emanated from the 53% invested in UK equities.
Jonathan Sumption QC, acting for Unilever, said of the risk employed: “Six percent is where Mr Lennard had got to, which is off the top of the scale.”
The six-strong Select team was led by John Richards who, the court was told, employed a similar risk profile as Lennard to the portfolios he ran. Of 59 funds managed by the Select team Lennard ran 13.
Lennard bet on a downturn in the financials sector and a cyclical recovery in industrials in which he went 29% overweight relative to a neutral position of 16%. He had also introduced a bias in favour of small-sized companies.
Sumption said: “Had it come off he would have outperformed everyone else by a considerable margin.”
But it didn’t. From July 1996 to July 1997 Sterling appreciated against the deutschmark by 31%. Firms such as British Steel, Pilkington and ICI - in which Lennard had taken large stakes - were badly affected by the high price of Sterling.
Sumption said: “Lennard is on record as saying that ‘the currency movements were not extraordinary. The only extraordinary thing is that I did not pick up on them.’” Such an admission will form a central plank in Unilever’s case.
In March 1997, Frank Russell was commissioned by Unilever to look into the performance of the Select team and also another manager, Schroders. Gartmore, Unilever’s third manager was not investigated. Frank Russell revealed Lennard’s “very aggressive style” had led to a small cap value bias with concentrated asset allocations.
By May 1997 Lennard’s underperformance became apparent to MAM. He was replaced and a recovery programme adopted.
However, in examining the wide documentary evidence arrayed before him Mr Justice Colman noted that Lennard had in the past been recognised for “his success.”
Unilever is seeking £110m plus interest of £20m. It is rumoured that in an attempted out of court settlement MLIM offered Unilever £20m but the pension fund refused, holding out for at least twice that sum. MLIM has counterclaimed for £584,000 in unpaid fees plus interest.
MLIM maintains that the +1% and -3% objectives were targets and not guarantees.
The case is expected to run for 6-8 weeks.
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