The Co-operative Group has sacked Merrill Lynch as manager of its pension fund, accusing the bank of poor investment performance.

The Co-op is now considering to take legal action against Merrill Lynch Investment Managers (MLIM), which looked after a quarter of the �2bn pension fund.

The move ends a 30-year relationship between Merrill and the Co-op, and was triggered when several senior fund managers left Merrill for other firms.

Last year the investment managers fought a high-profile court battle with the pension fund of Unilever, which had complained about poor returns as well.

In December, supermarket group Sainsbury's said it was considering suing Merrill for mismanaging its investment fund.

'Unhappy for some time'

Merrill Lynch Investment Managers is the UK's largest pensions fund manager, looking after assets worth about �64bn ($93bn). Globally, the firm has more than $518bn under management.

Among its clients are over half of the UK's largest companies listed in the FTSE 100 stock index.

But in the Co-op's view, "Merrill's historic investment performance in relation to the fund" was simply not good enough.

"We have been unhappy with Merrill's investment performance for some time," said Nick Eyre of the Co-operative Group.

"In view of the recent exodus of key managers from Merrill's ... we have decided to dispense with their services."

Among the top staff that have left MLIM in recent weeks are Andreas Utermann, head of equities outside the United states, and Anne Richards - and half her team - who looked after the money of smaller pension funds.

Fund analysts have reportedly advised their clients to reconsider their relationship with MLIM in the light of the staff losses.

Speaking to BBC News Online, Martin Henderson, head of public relations of Co-operative Group, refused to discuss how much money the Co-op thought it had lost out on, because the group may take legal action.

Unhappy customers

Investment returns have been generally poor in recent years, with share prices plummeting from dizzy heights reached in spring 2000.

But some of the complaints go back much further.

When Unilever's pension fund took Merrill to court, it was mainly about poor performance in the late 1990s.

The case was finally settled out of court, with Merrill Lynch paying �75m without admitting any liability.

The UK's second-largest supermarket chain Sainsbury's, drugs maker AstraZeneca, and Surrey County Council are other Merrill clients considering legal action.

The Co-op's pension fund has just over 60,000 members, and a total value of �2.1bn.

The �500m share under Merrill's management will now be taken on by Legal & General Investment Management, one of five firms looking after the rest of the �2bn pension pot.

The contract with Merrill formally ends on 31 May, and the Co-op pension fund is now looking for a company to manage this part of its investment.