Fund managers wait to see who's next as Unilever and Merrill Lynch reach an out of court settlement
It is the time of year-end reviews and year-ahead projections. Silly hats, a few soggy Christmas parties, a decent bonus and a gentler end to a dismal few months. But the industry is being rocked from its seasonal torpor. Markets have suddenly lit up like a Christmas pudding and amid the jolly jingles, some discordant news is ringing out.
The Queen is looking for a new fund manager to take on her eccentrically constructed portfolio of dotbombs, music arrangers and sporting ventures. Such a post would normally attract a rush of applications from ambitious City houses keen to get the royal insignia emblazoned on their merchandise. But the talk of the taverns is that this is an opportunity to let pass right now. High profile management has just got less alluring, after the mighty house of Merrill Lynch blinked first in the standoff with its former client, the Unilever pension fund. The out of court settlement, rumoured to be a payment of £70m from Merrills, is, firstly, a miserable climbdown for star fund manager Carol Galley.
The offer also reflects the huge embarrassment to the house formerly known as 'The Thundering Herd.' It was certainly aware that its new acquisition, Mercury Asset Management, was a spirited animal, but its bad habits were clearly not evident at the time of purchase. Any MAM elements left in Merrills must fear being put out to grass for a while.
For the industry, the question now is who will dare to take a similar potshot at their underperforming fund manager. Sure, most targets are not going to be sitting ducks. But many pension funds might think it worth a try ' even a few million would be handy given the yawning funding gap most schemes are facing. The court case delivered a sharp slap across the face of an industry that has been rather smug, but others should not giggle. They may be next.
Anyone whose business it is to give advice might now be reflecting on their liabilities. Like traders who have to be sure their widget will clean, smooth, cut or suck, as they say it will, advisers are now under increased obligation to prove their opinion is right. Intermediaries and management consultants are already edgy. The message is: don't promise anything you can't deliver.
While markets are subdued and lack of opportunities abound, investors are highly receptive to this more conservative approach. Risk aversion is currently widespread and star managers are regarded as something of a hazard. But how long will it last? The excitement of a real rally is hard to resist, even for pension fund trustees. The only thing worse than losing money in a falling market is missing out in a rising one.
This outlook rather depends, of course, on whether the global economy does manage to shake off recession. The 'R' index ' the number of times the word 'recession' is used in media reports ' is at a high. Historically this is an accurate lagging indicator of market lows. So while sentiment is still doom-laden, many areas of the market have recorded significant gains. In fact, some analysts are astounded at the strength of the recent rebound. Targets they had set for the end of the first quarter are in danger of being reached by the end of the year. It may be a false dawn, but a bit of light is a welcome relief from the general gloom. Unilever and Merrill Lynch, having seriously damaged the industry's image, profess to be back to normal business relations. With a more buoyant market, everyone can be friends again.
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