Carol Galley, the so-called Ice Maiden executive from Merrill Lynch Investment Managers, conceded in court yesterday [Monday] that the fund manager she appointed to oversee a large part of the pension fund of Anglo/Dutch consumer goods giant Unilever had been fairly lambasted in a report into his practice.

In her continuing testimony at London’s High Court, Galley also revealed that her company introduced more formal risk-control steps after a period during which the Unilever Superannuation Fund saw persistent underperformance.

Unilever is suing Merrill for £130m (US$190m) on the grounds that its forerunner Mercury Asset Management mismanaged part of the company’s pension fund between 1997 and early 1998. Unilever alleges improper risk controls, inadequate diversification and a failure to provide downside protection for its money. The fund allegedly lagged an agreed performance benchmark by 8% and was managed at twice the level of “active risk” compared to other UK equity funds in Lennard’s team.

Merrill however claims it was not negligent, and insists that the fund was up almost 21% during the 15-month period that Unilever is contesting. Across the same stretch however, Britain’s FTSE 100 index gained 39%.

Fund manager Alistair Lennard, who is expected to take the witness stand today, has been dubbed a ‘wild card’ by Unilever’s lawyers. He was relatively young and inexperienced when he took over the £1bn fund in 1993, and the court case largely hinges on whether his appointment, and subsequent free rein in decision making, constituted negligence on Mercury’s part.

Galley has so far consistently defended Lennard, despite the fact that his underperformance through the 1996-97 period eventually led to his removal from the Unilever account. Yesterday, however, Galley conceded of Lennard’s performance in 1997: “He’d had a bad year.” She accepted as appropriate the criticisms of Lennard in his career review of March 1998, which was authored by his team leader Keith Mullins. Mullins had then concluded that Lennard “needs to have a more consistent application of risk control”.

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Unilever also contends that Mercury should have implemented new systems to more closely monitor risks earlier. Galley accepted that before the underperformance of the Unilever fund, the company relied on informal “shoulder-tapping” checks, but she insisted such checks were adequate and denied that the more formal controls were triggered specifically by Lennard’s management of the Unilever account. Instead, she said the formal risk reviews of 1997 were part of overall industry changes.

“There was a stock market that was changing,” she said: “That was also an important part of the reason that the [original] risk controls didn’t work.”

Galley also maintains that Merrill prioritised a move to beat the benchmark rather than the downside target of limiting losses. She insisted that Unilever’s benchmark could never have been achieved if Mercury had given upside and downside targets equal weightings.

Fifty-three year old Galley has revealed that she will retire at the end of the year.