Blow to Merrill as more pension fund mandates are withdrawn

Internal links

News Analysis: Merrill's reputation is in tatters

More question marks hung over Merrill Lynch Investment Managers yesterday after a number of pension fund trustees said they were considering sacking the company as manager of their members' money.

The Church of England and the aerospace manufacturer GKN said they were reviewing the management of their funds, which may lead to them terminating their contracts with Merrill.

The move comes after the Co-operative group said on Friday that it had decided to stop using Merrill as the manager of £500m of assets because it was "disappointed" with the company's performance.

The Co-op said it was considering using Merrill for its "historic record", which relates to when Mercury Asset Management handled its funds in the 1990s. Merrill bought Mercury, at the time run by Carol Galley, in 1997.

The Church of England said it was considering where to place £160m of pension assets. "We have been reviewing the situation since November and no decision has yet been made," a spokesperson said.

GKN, which was using Merrill among other managers, said it was now conducting a "beauty parade" over its £350m fund. The review has been triggered by the fact that GKN merged three pension funds into one in 2001, but the company is expected to take the recent barrage of criticism of Merrill into account when making its choice.

Another client of Merrill, the London Borough of Hounslow, is also reviewing its pension fund and may switch to a different fund manager. Its review will be completed by the time its pension fund trustees meet at the end of next month.

Merrill's record as a pension fund manager came into the spotlight at the end of last year when Unilever sued it for failing to fulfil a contract in 1996 and 1997 to perform in a similar way to a benchmark. Merrill said it would not undershoot the benchmark by more than 2 per cent but in fact underperformed by 10 per cent.

A number of other pension funds are also considering whether to sue Merrill for underperformance. They include Surrey Country Council, AstraZeneca and J Sainsbury.

The vast majority of the troubled pension funds were managed by Merrill's Select Team, which included a young fund manager Alistair Lennard and his boss John Richards.

Merrill's fund management has suffered from low morale since the court case, which involved the US investment bank handing more than £70m in compensation out of court.

Since then Anne Richards, head of Merrill's UK equities Alpha team has left along with four members of her team, and Andreas Utermann, global head of equities.