CalSTRS is in the process of “defunding” its roughly $1.1 billion allocation to Western Asset Management Co., joining a string of pension funds redeeming assets from the manager in the months since it was rocked by fraud charges against its former co-CIO.
The $349.7 billion California State Teachers' Retirement System, West Sacramento, “is currently in the process of defunding this manager’s full allocation,” a spokeswoman confirmed by email. “This decision was made by CalSTRS investment team staff as part of routine risk-and-return analysis for the fixed-income portfolio,” she said.
The allocation has fluctuated over time, but WAMCO managed just under $1.1 billion in core-plus fixed-income assets for the pension fund as of June 30, according to a semiannual report on its website.
CalSTRS’ investment committee portfolio risk report in November showed that WAMCO represented the pension fund’s largest fixed-income relationship, running 2.8% of its bonds portfolio.
The spokeswoman did not comment on the reason for the redemption and said there were no further details to share when asked how CalSTRS would reinvest the assets.
A Franklin spokesperson declined to comment on the CalSTRS news.
WAMCO, a wholly owned subsidiary of Franklin Resources, hit headlines last year with allegations of fraud by former co-CIO Ken Leech, who was accused of cherry-picking trades. News broke in August that he was under investigation by the Securities and Exchange Commission. He was put on leave and, in late November, the SEC and the Southern District of New York filed fraud charges against him. A spokesman told Pensions & Investments in January that Leech denies the charges.
P&I reported in January that net outflows at WAMCO were about $17 billion for that month, bringing the total since August to about $120 billion. The fixed-income manager was still running about $260 billion in assets after the outflows, executives said in January.
Ohio Police & Fire Pension Fund, Columbus, with $18.9 billion in assets, approved the termination of WAMCO from a $180 million short-term cash portfolio at its Jan. 29 meeting; while the $56.4 billion Illinois Municipal Retirement Fund, Oak Brook, approved the termination of WAMCO from a $973 million active domestic core-plus fixed-income portfolio at its Nov. 22 meeting.
Bloomberg reported in December that WAMCO was revamping some of its fixed-income strategies and trying to retain investment staff, while PPM America said in January that it was adding WAMCO’s former emerging markets debt team to its ranks.
