UK - The first witness called on Thursday in the trial between Unilever and Merrill Lynch Investment Management (MLIM) was questioned on whether the trustees should share responsibility.
The Unilever pension fund is suing MLIM for £130m it says it is owed because MLIM was negligent in the way it allowed underperformance of its £1bn UK equity portfolio.
Former chairman of the Unilever Superannuation Fund Hugh Stirk agreed with MLIM’s barrister Ian Glick QC that “you don’t have to be an expert to realise Mercury was running the portfolio on a small number of stocks.”But Stirk argued that the trustees “were not able to judge, but only have their own opinions” on the construction of the portfolio.
Merrill, which bought Mercury Asset Management in December 1997, is arguing that Unilever trustees were guilty of contributory negligence - that they knew of the investment strategy of former Mercury fund manager Alistair Lennard and did not do enough to prevent the risk and underperformance of the UK equity portion of its fund.
Glick questioned Stirk on why Unilever Pensions Investments Limited (UPIL), a body set up by the trustees to manage the fund managers, did not pick up that out of the top ten shares in the FTSE 100 index Lennard had only invested in one, Shell Trading and Transportation in 1995. He explained that the 20 largest stocks in the portfolio made up 81.3pc of the portfolio but only 13.9pc of the FTSE 100 share index.
He added that in a meeting between trustees and Mercury in 1995: “He [Lennard] told you about how he constructed the portfolio and even how the companies invested in went about their business.”
Stirk agreed with this. But Stirk maintained that the trustees were not responsible for “second guessing the investment manager” and that the trustees and UPIL were there to “monitor the overall performance critically.”
However, last week the presiding judge Mr Justice Colman’s undermined MLIM’s defence when he said: “It is an unusual concept for contributory negligence to be asserted.”
The case is expected to continue until after Christmas.
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