Legg Mason's Bill Miller leaves firm amid faded glory

August 11, 2016 9:19 AM EDT

Bill Miller of Legg Mason Capital Development leaves the morning presentation at the 26th annual Allen & Co conference in Sun Valley, Idaho July 9, 2008. REUTERS/Rick Wilking


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By Richard Leong and Ross Kerber

NEW YORK/BOSTON (Reuters) - Legg Mason Inc's Bill Miller, whose mutual fund beat the S&P 500 handily for 15 consecutive years at the turn of the century, is riding off into the sunset after his recent lagging returns left a trail of disappointed investors.

Miller, one of the last household names in the U.S. mutual funds industry, is departing Baltimore-based Legg Mason after 35 years, the company said on Thursday. He won high regard for picking "value" stocks and making big bets on them with the Legg Mason Capital Management Value Trust fund, which he left in 2011 and is now the ClearBridge Value Trust fund.

In its heyday, the fund beat the S&P 500 every year from 1991 to 2005.

A spokeswoman for Miller, 66, said he was traveling and not immediately available to comment.

At the $1.3 billion Legg Mason Opportunity Trust, Miller's stock picking clearly had not been working, prompting investors to pull their money.

This year, investors have made net withdrawals of $112 million from the fund and $779 million over the past five years, according to Lipper Inc, a unit of Thomson Reuters.

The fund's 1-year return of -18.06 percent lags 98 percent of its peers and trails the 5.73 percent advance of the S&P 500 Index during that time, according to Morningstar.

Loren Fox, director of research at Ignites Research, which follows the fund industry, said Miller’s departure is mainly symbolic, given that he oversaw a relatively small amount of assets under management at Legg Mason in recent years.

“While a star manager can create a marketable face for a firm, it can carry risks if that star underperforms” or runs into other troubles, Fox said.

Miller showed flashes of his old self in 2012 and 2013, when his fund returned 40.68 percent and 68.03 percent, respectively. He outperformed 99 percent of his peers during those two years, according to Morningstar Inc.

But his departure, as Wells Fargo equity analyst Christopher Harris put it, "has no consequential bearing on (Legg Mason's) financials, given the relatively small amount of assets Miller now manages."

The Legg Mason Opportunity fund generated $18 million in management fees in 2015. By contrast, the Legg Mason Value Trust fund generated $121 million in fees in 2006, U.S. regulatory filings show.

Legg Mason shares are down 29 percent over the past 12 months, compared with the S&P 500's 5 percent return.

Miller had been the public face of Legg Mason for years and his performance troubles handicapped the firm’s recovery from the financial crisis.

Legg Mason's record eventually drew the attention of activist hedge fund investor Nelson Peltz, who became a board member in 2009 and oversaw the replacement of the firm’s CEO in 2012. Peltz has since left the board and his firm, Trian Partners, sold most of its Legg Mason shares earlier this year.

The exodus from Miller's fund underscores a larger problem for active managers everywhere as they lose a flood of money to passively managed index funds. Since the end of 2008, Vanguard Group, the industry's king of index funds, has pulled in nearly $1 trillion in net deposits.

Miller left the Value Trust fund in 2011 after the fund's downturn during the recession.

"I am thankful to Legg Mason for our 35-year relationship and to the many great people I've worked with along the way," Miller said in a statement.

With Miller's departure, Legg Mason said, Miller acquired Legg Mason's stake in LMM LLC, which provides investment management services to Legg Mason Opportunities Trust, Miller Income Opportunities Trust and related strategies.

Terms of the transaction were not disclosed. The deal is expected to close at the end of the year, Legg Mason said.

(Reporting by Richard Leong; Additional reporting by Ross Kerber and Tim McLaughlin in Boston.; Editing by Chizu Nomiyama and Dan Grebler)



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