One of the longest-running sagas in asset management is finally set to come to a head – well, in another year’s time at least.
The spat between Unilever’s pension fund and its former fund manager Mercury, now part of the re-christened Merrill Lynch Investment Managers, looks set to end up in the High Court in London in October 2001 after both sides failed to settle.
It is a turn of events which neither party will be delighted about. Both Unilever and Merrill Lynch have maintained total public silence over the dispute since it blew up in 1998. But now it seems their grievances will be aired in court.
The dispute has also surprised the UK’s asset management community which normally prides itself on the good relations between managers and clients. For a pension fund to criticize its manager in public, let alone take it to court, something extraordinary has to occur.
In this instance the argument rages over a £1 billion ($1.6 billion, at the time) mandate which Mercury was running for Unilever. The pension fund claims there was an agreement in place that Mercury would guarantee not to underperform its benchmark by more than 3% in four successive quarters.
Unilever is claiming Mercury’s underperformance cost the fund £100 million which it is now seeking in damages. Mercury disputes Unilever’s claim.
There is, of course, still a chance that law firms Slaughter&May, for Unilever, and Simmons&Simmons, for Mercury, will be able to force a settlement before next October.
If not, the likes of Merrill Lynch’s Carol Galley could be called to the witness stand to give their side of the story. Galley, one of the City’s leading figures, is said to have taken the Unilever action quite personally.
She was said to have had a good working relationship with Wendy Mayall, Unilever’s chief investment officer, until events subsequently took their course.
In fact Mayall and Unilever were deciding whether to take Mercury to task at just the time that Galley and Stephen Zimmerman, her co-head at Mercury, were negotiating the sale of the investment house to Merrill Lynch for £3 billion in November 1997.
David Komansky, Merrill Lynch’s CEO, who had been hunting for an asset manager for some time was delighted by the deal and called Mercury a “crown jewel in asset management”.
The case will attract the close attention of fund managers and clients who may draw parallels with their own experiences. Should Unilever win damages from Merrill Lynch, the result could spark off a wave of similar actions from other funds looking to claw back lost returns from their portfolio managers.
Meanwhile yet another long standing asset management case, relating to the Deutsche Morgan Grenfell affair of 1996, remains unresolved. Former fund manager Peter Young could face charges of conspiring to defraud DMG. Preparatory hearings are still happening and the trial, if it goes ahead, is slated for 2001.
