UPDATE 2-Legg's Western Asset investment chief to retire in 2014

Thu Mar 21, 2013 3:28pm EDT

By Ross Kerber

March 21 (Reuters) - Legg Mason Inc's Western Asset Management unit said on Thursday that Chief Investment Officer Steve Walsh will retire in March of next year after steering its funds back from a poor performance stretch during the financial crisis.

Western Asset, the fixed-income division of Baltimore-based Legg Mason, said Ken Leech will become CIO effective March 31, 2014. Leech was the firm's CIO from 1998 to 2008, and after a medical leave returned to lead Western's global investment strategy committee.

Walsh had been Leech's deputy and took over as CIO in 2008, right in the midst of rough patch for the well-known bond fund sponsor.

Data from Thomson Reuters' Lipper unit shows that after beating 66 percent of peer funds in 2006, Western's fixed-income mutual funds on average beat just 44 percent of peers in 2007 and just 30 percent in 2008. That performance trailed competing fund sponsors like BlackRock Inc and Franklin Resources Inc.

Western's overall record has improved in recent years, but the underperformance led to investor withdrawals. Excluding money market funds, investors withdrew $7.9 billion from Western-advised fixed income mutual funds in 2008, and continued to pull out money until last year, according to Lipper. In 2012 investors added $2.5 billion to those Western funds.

The outflows contributed to broader problems at Legg Mason, whose previous Chief Executive Mark Fetting resigned under pressure last fall.

Last month Legg Mason named as its new CEO Joseph Sullivan, an insider who vowed to continue the company's structure of semi-autonomous investment units like Western. Sullivan said he would also work to offer executives at the affiliates some equity in their own businesses. [ ID: nL1N0BD5BP ]

With $461.7 billion under management at the end of December, Western is by far the largest of Legg Mason's affiliates.

Others include the company's equity-focused ClearBridge Investments, with $57.3 billion at the same point in time, and value investor Brandywine Global with $42.9 billion, according to an investor presentation by the company.

Walsh, 54, will retire for personal reasons, to become more involved in family and charity work, said Western Chief Executive James Hirschmann in a telephone interview.

Walsh and Leech will be co-CIOs for the next twelve months. Leech, 58 years old, will remain based at Western's headquarters in Pasadena, California, where he and Walsh have been longtime collaborators, Hirschmann said.

"Ken and Steve have sat next to each other for the past 23 years, so they are very much of the same philosophical approach to investing," Hirschmann said.

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