November 17, 2011 / 3:39 PM / 7 years ago

Legg Mason's Miller to step down from main fund

(Reuters) - Bill Miller, a star mutual fund stock-picker who posted a 15-year-long winning streak before losing his touch as the financial crisis hit, will step down from his flagship fund at Legg Mason Inc (LM.N) in April.

Sam Peters, 42, who was named co-manager with Miller last year will become the sole manager of the $2.8 billion Value Trust fund and the Value Equity strategy, Legg Mason said on Thursday.

Legg Mason of Baltimore last year had flagged Peters as Miller’s eventual successor, but at the time Miller, 61, said he had no plans to retire, leaving the exact schedule of the transition unclear.

In an interview on Thursday, Peters said the firm picked Miller’s departure date from Value Trust to mark the 30th anniversary of the year he co-founded the fund in 1982.

In a separate interview, Miller said that after managing two, sometimes three, funds over the last three decades, relinquishing control of Value Trust would free up time.

“Post age 60, and after 30 years of doing that fund, getting a little more control of my time was an important objective,” Miller said.

Peters said he plans to stay in close touch with Miller about the portfolio going forward, since Miller will remain chairman of the division that was built up around Value Trust, Legg Mason Capital Management.

“He’s going to be a core guy I talk to every day,” Peters said.

The move begins the endgame for one of the mutual fund industry’s best-known stars. It also reflects how an era of high-flying portfolio managers has faded as their returns have been hit by the intense market volatility of the last few years.

Miller said markets enter phases in which robust strategies come under pressure and stock valuations are not taken into account. “That’s clearly the case now,” he said.

Other well-known managers whose records have fallen down lately include Fairholme Fund’s Bruce Berkowitz and CGM Focus Fund’s Ken Heebner.

Fund companies could once count on these managers to bring in and hold onto investors and their money, but now investors have more options such as low-cost exchange-traded funds making them less patient with underperformance, said S&P Capital IQ analyst Todd Rosenbluth.

“The volatility of markets has made it hard to be a good stock picker year after year,” Rosenbluth said. “Risk isn’t being rewarded.”

At Miller’s Value Trust fund, for instance, investor outflows helped drive assets down to $2.8 billion in October after peaking at $21.5 billion in May of 2007, according to data from Thomson Reuters’ Lipper unit.


For Legg Mason, the move marks another major casualty after suffering several years of outflows and investor pressure amid disappointing stock performance.

Activist investor Nelson Peltz and private equity firm KKR (KKR.N) now hold seats on the company’s board.

As of Wednesday Legg Mason shares were down 29 percent for 2011 so far, compared with the Dow Jones index of asset managers,.DJUSAG down 23 percent. Shares were down 3 percent at $24.78 in afternoon trading.

The company last year began a cost-cutting and restructuring effort designed to preserve profits and help restore performance, which had also fallen off at Legg Mason’s big Western Asset bond unit.

It remains to be seen how Peters might reverse the fortunes of Value Trust. Peters, who had run a smaller fund at Legg Mason, is known for not holding onto stocks as long as Miller tended to. But the two men are alike in other ways, such as having a shared interest in topics outside investing, including philosophy.

Peters suggested few big changes are in store. He and Miller already had worked together to shift Value Trust’s holdings after Peters joined last year, such as buying more health care companies and what Peters called “megacap” stocks, those of companies with the largest capitalizations.

Another recent play was to add shares of Philip Morris International (PM.N) over the summer, counting on its high dividends and share buybacks. “The body of what Bill and I wanted in the fund, that’s in place,” Peters said.

Some investors had wondered if the timing of Miller’s departure reflected pressure from Peltz and other executives after the poor run. “I’d imagine it was a confluence of factors,” including the wishes of Peltz, said Kenneth Crawford, who until earlier this year had owned shares of Legg Mason as a portfolio manager for Argent Capital Management LLC in St. Louis.

Miller refuted that observation, saying Legg Mason’s management had never intervened and that Peltz “certainly never had a conversation with me about performance.”

Peters, too, said there was no pressure, describing how the timing was driven by the upcoming anniversary. Peltz himself has been interested in Miller’s views, Peters said.


Miller’s Value Trust fund beat the Standard & Poor’s 500 index for 15 straight years.

That feat, unmatched by any other modern fund manager, earned him the title “manager of the decade” from research firm Morningstar, one of the highest honors in the industry.

But his winning streak ended in 2006 when big bets on some of America’s worst performing stocks at the time, including (AMZN.O) and Yahoo YHOO.O turned sour.

During the financial crisis in 2008, his fund was further dragged down by bets on troubled financial giants like Bear Stearns and American International Group Inc (AIG.N).

Despite a comeback in 2009, Miller never fully recovered, and this year the fund is off 5.48 percent, trailing the bulk of its peers.

In past interviews Miller has acknowledged the problems and said the increasing importance of macroeconomic factors swamped his stockpicking skills.

Miller said in a statement On Thursday that “April 2012 is the right time for Sam to take over.” He also said he and Peters were pleased with how the fund is positioned.

In addition to remaining chairman of the Legg Mason Capital Management unit, Miller will continue to run the $1 billion Opportunity Trust fund. Peters will also become chief investment officer for Legg Mason Capital Management.

In a statement, Legg Mason Chief Executive Mark Fetting said the move was a “Legg Mason Capital Management decision that has been in the works for a while.”

Reporting by Ross Kerber, Svea Herbst-Bayliss and Aaron Pressman in Boston; Herbert Lash and Jessica Toonkel in New York; Editing by Maureen Bavdek, John Wallace, Dave Zimmerman and Bernard Orr

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