PASADENA, Calif. — Western Asset Management Co., the smallest of the three money managers dominating the U.S. fixed-income market, soon will become the biggest, leading some competitors to predict the extra size won't agree with the high-flying bond shop.
WAMCO will gain about $280 billion in assets when parent Legg Mason Inc. completes a swap of its brokerage operations for Citigroup Inc.'s asset management arm. The deal is expected to be completed by Dec. 1.
The addition of Citigroup's assets, coupled with a stretch of torrid organic growth, will give Western Asset roughly $520 billion under management, barely nosing out the $514 billion longtime market leader Pacific Investment Management Co., Newport Beach, Calif., had as of Sept. 30. BlackRock Inc., New York, the third member of the so-called bond oligopoly, managed $428 billion as of Sept. 30.
Competitors say that market-topping scale could prove to be a bigger hurdle for WAMCO than it has for PIMCO because of WAMCO's more bottom-up investment style.
"Size is a deterrent for them," said the head of fixed income with a Boston-based firm, who declined to be named. PIMCO makes money on big macro trades, while WAMCO's style relies more on individual security selection. WAMCO's added size will increasingly force the firm into PIMCO's territory of sector rotation, he predicted.
Another fixed-income veteran said Western Asset's size was already unwieldy, so the addition of Citigroup's assets will make it "prohibitively difficult" to move out of positions, even with the largest corporate issuers.
Market watchers are hard-pressed to name a fixed-income acquisition even remotely close in scale to this one.
Clients and consultants say size is an issue, but Western Asset Management's strong corporate culture and superior track record leave them more than willing to give the firm the benefit of the doubt.