US-based global bond manager, Western Asset Management, has seen massive outflows in the wake of legal probes into trading practices revealed earlier this year with more exits likely as authorities circle.
According to a Bloomberg report last week, the US Attorney’s Office in New York had grilled a number of other managers including Fidelity Investments and SEI Investments over alleged favourable trades dispensed by co-chief investment officer, Ken Leech, who took a leave of absence in August.
“US authorities are examining whether Leech parceled out winning trades to favored clients at the expense of others — a practice known as cherry-picking. Investors have pulled billions of dollars from Wamco funds since the firm disclosed criminal and civil investigations earlier this year,” Bloomberg reported.
The allegations cover about 17,000 trades made over 38 accounts and three strategies during a three-year period, the report says.
Investors have pulled some US$37 billion from Western, since the scandal broke earlier this year, leaving the Franklin Templeton-owned manager with about US$353 billion at the end of September.
For example, Russell Investments, which uses Western in several global bond funds and in a NZ fixed interest strategy, has signalled plans to dump the manager this quarter.
The Russell global fixed interest fund has a 12 per cent target allocation to Western with the remainder managed by a mix of external firms – Colchester, RBC and Schroders – as well as an in-house component. For its NZ bond fund, Russell splits duties equally between Western and Harbour.
It is understood that Russell was close to finalising a replacement manager.
Western is responsible for about 20 per cent of the assets managed by the multi-affiliated US-listed Franklin.
Other US media cited a communication from investment consultant, Meketa, noting that Western was “trying to be as transparent as possible, while also trying to stem inevitable asset outflows and redemptions”.
“While we do not believe there is a systemic risk management problem at [Western], we do believe the firm could see significant redemptions and outflows,” the Meketa note says.