Alistair Lennard, the Mercury Asset Management (MAM) protégé at the heart of a London High Court wrangle initiated by consumer products giant Unilever, yesterday testified that he only took risks with its pension fund because Carol Galley, co-manager at Mercury, had wanted him to.
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The Anglo/Dutch group alleges that Lennard’s poor management of its Unilever Superannuation Fund (USF) led to a loss in earnings, and is suing Merrill Lynch (which purchased MAM in November 1997) for £130m (US$187m) worth of damages. USF counsel have branded Lennard a “wild card” and claim he took excessive risks that led to the fund’s performance lagging behind an agreed benchmark by 10.5% during the January 1997 to March 1998 period.
While Merrill admits that the fund underperformed, meanwhile, it denies this was as a result of poor management and is counter-suing for £580,000 in unpaid fees and interest.
During her testimony, Galley has so far defended her fund managers, her firm, and the internal risk controls in place at MAM, but Lennard revealed in court that he placed big sector and stock bets for USF because Galley wanted him to invigorate the fund’s performance.
Three years under her management had seen the fund’s performance lag, he said, because her “conviction levels were probably falling” as she was “spending more and more time running the [Mercury] business as opposed to focusing on managing the money”.
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By GlobalData“I don’t recall her [Galley] saying take a more concentrated portfolio approach,” he said: “But it was implicit in putting me on the account.”
Lennard, who took over the £600m Unilever account in 1993 at the age of 27, was asked in court how he assessed the risk levels in his pension fund portfolio. Jonathan Sumption QC, for Unilever, pointed out that by the time he was removed from the fund in May 1997, the active risk in the portfolio under his care had risen from around 2% to over 5.5%. Lennard admitted that he took a “look and sniff” approach to buying shares, but insisted that many of his strategies were vindicated in the long run.
Furthermore, he maintained that the risks he continued to take after MAM’s January 1997 mandate, setting the performance target of beating benchmarks by 1% but not falling behind by over 3%, were still appropriate.
Lennard countered Galley’s testimony when he admitted that MAM’s quantitative risk management procedures were virtually non-existent. Fund mangers held brainstorming sessions on portfolios’ behaviour, he said.
The events in court London are being heralded as a landmark case, which may set new standards of accountability for underperforming fund managers.
