Lennard says Unilever contract endorsed him

Alastair Lennard, the young Mercury fund manager in charge of £600m of Unilever pension assets, yesterday asserted that his bold investment style was endorsed by the contract between the two companies.

Unilever is suing Mercury, which is now part of Merrill Lynch Investment Managers, for £130m after it seriously underperformed against benchmark targets between January 1997 and March 1998.

One of Unilever's main causes of complaint is that Mr Lennard took radical positions in stocks, such as holding 42 per cent of the portfolio in the industrial sector and investing in fewer stocks overall than his predecessor Carol Galley.

Unilever's counsel Jonathan Sumption QC said this tendency led to "stratospheric" risk levels which were out of line with Mercury's mandate to manage the assets in accordance with their status as a mature fund.

Mr Lennard told the High Court that the contract drawn up between the two companies at the end of 1996 allowed him to invest in as few as 12 stocks, with a stake of up to 5 per cent of his portfolio in one company.

Mr Lennard, who was giving his second day of evidence in the case, also pointed out that a draft of the contract produced in October 1996 even suggested raising the agreed level of holding in any one stock.

This document, which was sent by Unilever's chief investment officer Wendy Mayall to Mercury, said that the largest possible concentration in one stock could be 8 per cent, which would have allowed Mr Lennard to choose as few as eight shares if he wished. The fewest stocks Mr Lennard ever held was 37.

Mr Lennard was taken off the Unilever fund in May 1997 due to poor performance. He also had a bad year in charge of the fund in 1996, which returned a total underperformance of 7 per cent. Mr Lennard said that when he realised the full scale of underperformance, "it was painful for me, painful for Mercury and painful for Unilever."

The hearing continues.