UK - Co-chairman of Merrill Lynch Investment Managers Carol Galley made her long awaited appearance in the witness box on Monday as MLIM's first defendant.
Shortly after taking the stand, Galley admitted that Mercury “were surprised” by the underperformance of the UK equity portion of the portfolio run by former Mercury fund manager, Alistair Lennard.
The former co-director of Mercury Asset Management - which was acquired by Merrill Lynch in December 1997 - was asked by Unilever’s barrister Jonathan Sumption QC if the portion managed by Lennard underperformed for eight successive quarters from the second quarter of 1996 to the first quarter of 1998.
She replied: “The persistence was one of the biggest elements of surprise in the pattern of results, that it was quarter after quarter after quarter.”
Galley also admitted to failings in the concentration of the fund, which was Mercury’s house-style. She added: “It is a reasonable inference that the investment judgements within the fund, over the time period that we are looking at, had not worked out; and whilst I say, on the one hand, that the persistence over that time period was a complete surprise to all of us who were looking at it, it is a relatively short timeframe in the life of a pension fund.”
But Galley backtracked when asked by Sumption whether the underperformance was consistent with “proper professional standards” of fund management.
She replied: “My argument is that it was the stock market, and the performance of the stock market during this period, which caused the persistence of these returns over so many successive quarters without any kind of respite; and that the start of this period, which was the final quarter of 1996, marked a turning point in the stock market which went on and on and on and ultimately culminated in a financial bubble which we saw burst with the technology stocks last year.”
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