Legg Mason, Bill Miller Have Turbulent Year
At one time, Legg Mason’s William H. Miller was known as the king of mutual fund managers. Then, too many bad investments in low-quality mortgages and in stock of troubled companies like Fannie Mae, Freddie Mac and Bear Stearns uniformly swept away Miller’s title. One of the funds hardest hit from Miller’s management decisions is the Legg Mason Value Trust (LMVTX).
Investors have lost nearly 60% of their money this year in the Legg Mason Value Trust, which is now among the worst-performing in its class for the past one-, three-, five- and 10-year periods, according to Morningstar.
Legg Mason launched the Value Trust fund in 1982, followed by an initial public offering one year later. Last year, the fund had $22 billion under management; today, its assets total $4.3 billion.
Problems for Legg Mason first began to surface three years ago, when the company negotiated a swap of its stock brokerage unit to Citigroup in return for taking on the bank’s money-management operations. Since then, however, the Baltimore-based money manager has been plagued with performance issues. The economic downturn, continuing fears over the credit market, downgrades of its senior debt, investor redemptions and takeover speculation all have wreaked havoc on Legg Mason’s stock, which has lost more than 75% of its market value since the beginning of this year.
By comparison, reinvested returns of the Standard & Poor’s 500 Index declined by 40%.
Meanwhile, after three consecutive quarters of losses, Legg Mason announced plans to cut about 8% of its workforce on Dec. 5 in order to lower annual expenses by $120 million.
Looking ahead, more trouble may be in store for Legg Mason. Last month, analysts at Friedman Billings Ramsey downgraded the money manager to a “sell” rating because of fears falling assets could trigger a financing crunch. Moreover, some of Legg Mason’s agreements to shore up poor-performing funds are set to expire soon, which means the company might need to tap its cash in order to buy securities from the funds.
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