Galley battles Unilever court storm

WAS THE poor performance of Unilever's pension fund the result of a simple error or was Mercury Asset Management's stock market judgment so bad that it was negligent? Did Alistair Lennard, the Mercury man in charge of the fund, adopt an unnecessarily high-risk strategy? And did Carol Galley, former head of the house of Mercury and arguably the City's richest woman, back his flawed bets?

These were the issues facing Galley when she made her eagerly awaited debut this week as a witness in the £130m High Court clash between the soap giant and the fund manager charged with running the company's pension kitty in the 1990s.

Galley refused to sit as she stood her ground in four days of rigorous debate with one of the country's best-paid Queen's Counsels, Jonathan Sumption.

She chose her words with caution, often causing Mr Justice Colman to reprimand her for not answering the question, but never hesitated to defend the actions of the then-young Lennard. Yes, she was aware he adopted a far higher risk profile than his colleagues and she knew he had not followed house recommendations in dumping all the fund's bank stocks in favour of industrial shares.

And true, he had got it horribly wrong. The stock market continued-to 'roar' in 1996, despite rising-interest rates, and bank shares confounded Mercury's predictions when they continued to soar. The industrial stocks that accounted for 45% of the fund came a cropper thanks to the strong pound and other little unforeseen events.

The humble pie must have slid down with difficulty as Galley conceded the performance of Unilever's fund was 'very disappointing'. In fact, it was worse than anything Mercury had ever faced and it was not sure what to do. The market was not behaving as it was supposed to, she added.

But fund management is about 'judgment', Galley told Mr Justice Colman, and sometimes one has to embrace risk to outdo the pack. However, she said this was no excuse for the 'crude attempt at blackmail' performed by Unilever finance director Hans Efferstedt. In a witness statement handed to the court on Monday, Galley claimed Unilever told her Mercury either paid compensation to the pension fund or Unilever would 'sack it as publicly as possible' and this would reflect on her.

But by Tuesday Galley was the subject of the attacks. Under intense questioning from Sumption, she admitted she had failed for two years to tell Unilever she was no longer running its fund. This task had been given to the 27-year-old Lennard in what Galley termed an 'evolutionary fashion'. 'Standing here today answering these questions, I wished I had told them. It was probably not what I would do today.'

Galley spent most of Wednesday defending his investment decisions, which saw the Unilever fund miss out on much of the spectacular stock market bull run enjoyed by others in late 1996 and in 1997. It was acceptable for Lennard to run a higher risk profile than his colleagues provided he was 'monitored and managed', Galley said.

On Thursday, the court learned that Lennard's strategy involved ploughing more than 8% of the fund's UK equity portfolio into companies worth less than £400m. These stocks accounted for eight of its 39 holdings. But Galley said such a composition did not surprise her, although she conceded the portfolio had been the most 'focused' she had seen. She is expected to continue her evidence on Monday.