Capital Management rose to fame under star money manager
"It's the latest chapter in the sad saga of the steady decline of Baltimore's once-vibrant financial community," said Daniel McHugh, president of Lombard Securities in Baltimore. "That's left
Said Jeff Tjornehoj, a senior research analyst with Lipper: "I could imagine that the public would feel a loss of identity."
Capital Management, which employs 45 workers, will be merged into Legg's ClearBridge Investments subsidiary this year.
Legg spokeswoman Mary Athridge declined to say how many workers would be laid off or where they are based. "It's a small number," she said.
Miller, who stepped down as Value Trust's manager last year, will remain in Baltimore and won't join ClearBridge.
Capital Management CEO Jennifer Murphy also won't remain with the merged operation, though she might find a different job within Legg, Athridge said.
The combination follows reports last week by both Reuters and Bloomberg News, citing unnamed sources, that Legg Mason's board spurned an offer by private equity firms and senior managers at its largest affiliates to take the investment firm private. While some analysts called such a move unlikely, Legg Mason's stock did jump for a day.
Add in the sudden resignation of its CEO last fall and Legg Mason appears to be in the midst of a big transition.
Legg Mason generally allows its subsidiaries to run autonomously, but there are limits to that independence, said Bridget Hughes, an associate director of fund analysis with
At its peak in 2007, Capital Management had $70 billion in assets under management. Today, its assets are one-tenth that size. ClearBridge has about $60 billion in assets.
Cost-savings is the initial justification for merging the two operations, but whether there are other factors behind the move is difficult to say, Hughes said.
"Without a permanent CEO in place, it's really hard to guess what direction they are going in," she said.
Legg has been searching for a new leader since former CEO and Chairman Mark R. Fetting stepped down Oct. 1 after failing to stem the outflow of investor dollars. Analysts say his departure came at the urging of Legg director and activist shareholder Nelson Peltz.
As of December, Legg had $648 billion in assets under management, a drop of nearly $3 billion in three months.
For many years, though, Capital Management attracted investors worldwide, lured by the stock-picking prowess of Bill Miller, who beat the S&P 500 index for 15 years in a row.
"Legg Mason Capital Management was really built up on the back of Bill Miller, his very strong performance and his following," Hughes said. "He is something of a celebrity in the mutual fund industry."
But Miller's string of victories ended in 2006.
"When the streak was broken ... that was really when the brand started to suffer," said Lipper's Tjornehoj.
As Value Trust's performance faltered, investors bolted. Today, Value Trust has $2.25 billion in assets, down from $20 billion in 2007.
Morningstar's Hughes said Capital Management's funds have had wide swings, with soaring performance in strong markets but below-average returns in bad times.
"It's always been hot and cold," she said.
Miller stepped down as manager of Value Trust last spring and gave up his position as Capital Management's chief investment officer. Sam Peters replaced Miller in both positions.
Peters will become a senior portfolio manager and managing director reporting to ClearBridge's co-chief investment officers, Scott Glasser and Hersh Cohen.
Miller will continue to manage the Legg Mason Capital Management Opportunity Trust fund as part of LMM LLC, a separate entity jointly owned by Legg and Miller. Opportunity Trust has about $1 billion in assets.
Four Capital Management funds with a total of $6 billion in assets will join the ClearBridge lineup. ClearBridge has 14 funds.
Macrae Sykes, an analyst with Gabelli & Co., said the merger of Capital Management into ClearBridge is "just a way of creating efficiencies." The move likely won't affect Legg shareholders, he said.
Legg's stock closed Thursday at $26.74 per share, up a nickel for the day.