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Verity&#39s view

Poor Merrill Lynch. Only very rarely does one feel sorry for a giant US investment bank. But looking at the public statements of this king of global finance after settling Unilever&#39s action for negligence, anyone who lacked sympathy would have to have a heart of ice.

The brief joint statement that accompanied the $100m settlement insisted in clipped legal language that both sides were “pleased” with the settlement.

Strange then, that no one from Merrill Lynch, with the one exception of its press man Robert Corrigan, was present in court. Wendy Mayall, Uni-lever&#39s head of investment, beamed for the cameras on the courthouse steps.

Carol Galley, the multi-millionaire fund manager who is soon to retire as a director of Merrill Lynch&#39s UK arm, stayed away.

Naturally enough, Merrill Lynch, formerly Mercury Asset Management, was making no admission of liability for its management of nearly £1bn of Unilever&#39s pension fund money five years ago.

If it did, it would make it all the easier for the likes of AstraZeneca or J Sainsbury, both of which have pension funds with a grudge, to launch similar legal actions. Even so, there was something petulant in its refusal to acknowledge anything remotely approaching defeat when, to everyone who has followed the case, it was a fact staring them in the face.

When the BBC asked Merrill Lynch to elaborate how it could have been “pleased”, the investment house issued an angrily wor-ded statement insisting that its decision to settle was “nothing to do” with how the case had been progressing.

Oh, come on. This decision came six weeks into one of the most expensive cases the High Court has seen, just a few days before the last evidence by the last witness, just a week before the summings-up by the very expensive silks Jonathan Sumption and Ian Glick and only days before the judge delivered his verdict.

Why, if it was nothing to do with the progress of the case, did Merrill Lynch waste so much time and money in court? We know the investment bank was talking to Unilever&#39s pension trustees before the case began and we know there was some money on the table – in the “tens of millions” but nothing like the $100m (roughly £70m) that it settled for.

Equally surreal was Merrill Lynch&#39s insistence that it did not think the case would trigger similar actions, an argument based on the unusually specific nature of the contract it had signed with Unilever.

Minutes later, Sainsbury put out a statement saying the settlement was “very significant” from its point of view, adding that it was considering its options carefully and was obliged to do what was best for its pension sch-eme members.

The case was settled rather than lost and fund managers are already drawing up contracts in a way they hope will be sufficiently unspecific for them to avoid being accused of neglecting their mandates.

But its implications for the investment world, not just in the UK but across the globe, are nonetheless huge.

If fund managers can be sued for negligence for taking more risks than their clients were led to believe, for example, by concentrating their portfolios on too small a number of stocks, then they are simply going to be less prepared to take risky bets. That, of course, means they are less likely than ever to beat the index.

No one likes working with a lawyer looking over their shoulder but that is what fund managers will have to do from now on. Those lawyers&#39 legal fees will add substantially to fund managers&#39 costs.

But more than that, fund management simply is not very much fun any more. When Alistair Lennard got his job at Mercury, part of his promise lay in the happy story of how he persuaded fellow students to inv-est their grant cheques in Rolls-Royce shares, making each of them a few hundred quid.

It must have been a thrill for him in the early 1990s when Carol Galley gave him £1bn to manage (without tell-ing Unilever).

But the failure of active funds to beat passive index trackers has already led many IFAs to question whether it is worth handing a client&#39s money to an overpaid young person in the City who may not do any better than a (much cheaper) index-tracking computer.

Edinburgh Fund Man-agers has predicted that there will be an exodus of talent from normal investment practice to a place where bright young fund managers can really take exciting risks – hedge funds.

As Carol Galley herself said before the case, the party that fund management once was is over and the way this case was settled at the last minute is likely to bring about a dramatic change in the way fund managers operate.

To deny the reality of that only serves to reinforce the impression of arrogance from a fund manager that, after all, is looking after ordinary people&#39s money. Merrill Lynch – grow up.

Andrew Verity is personal finance correspondent at the BBC

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