The board in charge of Baltimore City’s police and fire department pension fund is considering firing Legg Mason as its money manager, displeased with what they called consistently poor performance.
The Baltimore-based investment firm was called before the board Tuesday morning to defend its decisions with the Baltimore City Fire and Police Retirement System’s portfolio. Since Legg’s hire just over four years ago, the portfolio’s value has dropped 3.02 percent, according to the firm’s portfolio manager.
Stephan Fugate, chairman of the system’s board of trustees, said the system has about $59 million invested with Legg Mason, and said they’ve lost about $3 million since hiring the firm.
“It’s been a friggin’ nightmare,” Fugate said. “I wanted to fire Legg Mason a year ago. But on the advice of our [financial] consultants … we as a board chose not to, to let it play out.”
Fugate said the board was pressured to take on Legg Mason several years ago by the O’Malley mayoral administration, which pushed them to look for a local money manager. O’Malley’s administration had no comment as of press time.
“Legg was hired at a time when without that pressure, they might not have even been considered,” Fugate said.
Tim McGurkin and Sam Peters, portfolio managers with Legg subsidiary Legg Mason Capital Management, urged the board to hold the line and ride out the current tough market.
Legg’s value philosophy looks to beat the stock market by investing in companies they feel are undervalued, and reaping the rewards.
Peters conceded the firm had made several mistakes in handling the city portfolio, including a failure to diversify into things like energy commodities and gold.
“You guys are enduring a lot of pain,” Peters said. “Value stocks are getting killed. When things go the other way, when value strategy comes back … you gain a lot of ground.”
Legg Mason’s Value Trust is overseen by Bill Miller, chairman of Legg Mason Capital Management and the firm’s star money manager. The $9.18 billion fund is down 36 percent from last year, ahead of an 18 percent loss for the S&P 500.
A firing by the city police and fire fund would be the latest setback in a rough year for Miller.
Miller’s Legg Mason Capital Management purchased shares of Freddie Mac this summer to become the company’s largest shareholder, months before the ailing company was placed under government control.
Miller and Legg Mason founder Raymond “Chip” Mason could not be reached for comment Tuesday.
On Monday, Legg Mason took another blow when Wall Street investment giant Lehman Brothers filed for bankruptcy. A Legg Mason subsidiary, ClearBridge Advisors, was a major Lehman shareholder, with 39 million shares, or as much as 6 percent of the firm, as of June 30.
Board member Ted Weintraub asked the multibillion-dollar question: Could Legg Mason tumble like Lehman? The board’s financial consultants didn’t think so.
“I don’t think they’re anywhere close to folding,” said Christopher Tocco, vice president of St. Louis-based Summit Strategies Group. “You don’t hear their name like you hear Merrill Lynch, AIG, Freddie, Fannie. They seem insulated from this. Though Bill Miller’s not doing well, they have a strong asset management business.”
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