Founded in the 1970s, Los Angeles County’s largest bond investment firm didn’t exactly hit its stride until the past decade.
Pasadena bond giant Western Asset Management Co. remained a relatively small firm for many years, with a portfolio of less than $40 billion even by the late 1990s. But as the fixed income market began a period of rapid expansion, so too did Western Asset, which ramped up its product offerings and in just a few years managed to amass a quarter-trillion-dollar portfolio.
“That was just all growth through existing clients, new clients, broadening our product line and starting to expand our global footprint,” said Jim Flick, head of client services for Western Asset and sometimes fixed-income portfolio manager.
Then, in 2005, the firm’s parent company, Legg Mason, acquired Citigroup’s asset management division and combined the operations with Western Asset, roughly doubling the already-large portfolio practically overnight.
“That’s really where the big quantum leap occurred,” Flick said.”
Today, the firm has $479 billion under management in a portfolio entirely of fixed-income assets, cash and equivalents, making Western Asset the largest bond manager among firms headquartered in Los Angeles County. That’s despite some modest outflows over the past year. But its operations are not limited to Southern California: The firm has 900 employees spread across five continents.
Western Asset’s rise corresponds to the growing popularity of active bond management in the fixed income industry, favored by some of the top fund managers, including Bill Gross of Pimco and Jeffrey Gundlach, formerly of TCW Group Inc. Unlike index funds and buy-and-hold strategies, active management seeks better returns by exploiting market inefficiencies and adapting to interest rate fluctuations.
This evolution in the bond market has allowed Los Angeles to establish itself as a major center for fixed-income investment firms, including Western Asset, Capital Group Cos. and TCW.
“There are some very fine bond shops back on the East Coast,” Flick said. “But I think the industry in general thinks of Southern California as the active bond management capital.”
Unlike some bonds firms that cultivate star fund managers, Western Asset favors a team-based approach that can involve analysts across the world providing input during global strategy meetings. When the firm took home the 2004 “Fixed Income Manager of the Year” award from research firm Morningstar Inc., it listed portfolio manager Ken Leech – and his team – as the winner.
The firm won the award for its Core Bond fund, but several other funds have been performing better recently. With a one-year return of 30.25 percent, its High Yield fund is one of the best performing bond funds in the country over the past year, according to Morningstar. Over the past five years, the firm’s Emerging Markets Debt fund was one of the top performers, pulling in annualized returns of 8.09 percent.
Its performance hasn’t been flawless, though. In a recent Securities and Exchange Commission filing, Legg Mason acknowledged that Western Asset’s overall performance in 2009 was down from recent years.
Western Asset Management
Fixed Income Assets: $334 billion