Merrill Lynch Investment Managers, one of Britain's leading fund firms, could face a bill of Stg£130m if it loses a legal battle next week over the management of the pension assets of consumer giant Unilever by Mercury Asset Management which Merrill bought in 1997.
In a case beginning on October 15 in the High Court, the Unilever Superannuation Fund (USF) is suing Mercury Asset Management for Stg£130m, alleging it took excessive risks in managing one billion pounds of pension money between January 1997 and March 1998.
A win for USF would add to the already increasing scrutiny of fund managers and their risk control processes. Firms which widely underperform benchmarks are likely to get short shift from clients with further law suits a possibility.
According to USF, Mercury accepted a performance target for the portfolio of one per cent over its benchmark with a maximum underperformance of three per cent. Mercury underperformed its benchmark by 10.5 per cent over the period.
Under Mercury's management the portfolio grew by 20.65 per cent over the period - around 200 million pounds. But the fund argues that if the mandate had been managed according to the guidelines it agreed with the manager it would have been Stg£110 million better off.