Massachusetts' $50.6 billion pension fund on Wednesday fired a Legg Mason unit run by fund manager Bill Miller and four other fund firms from managing a $1.8 billion U.S. stocks portfolio due to poor performance.
The pension fund, at a board meeting, approved transferring about $1.4 billion of the $1.8 billion portfolio to asset manager State Street Global Advisors, a unit of State Street. State Street will manage the assets as an index mandate linked to the Russell 3000 index portfolio, the fund said.
The remaining assets will be put into a new fund-of-hedge-funds portfolio that will seek returns in excess of market returns, the pension fund's officials said. (Watch the accompanying video for more information on the legendary Legg Mason fund manager and other firms.)
They said the reshuffling of the asset managers was also part of its long-term goal of moving away from actively managed portfolios for large-capitalization U.S. stocks.
The fund firms whose mandates to manage U.S. stocks were terminated by the pension fund are Miller's Legg Mason Capital Management, Ariel Investments, NWQ, Mazama Capital Management and Gardner Lewis.
Stanley Mavromates, chief investment officer of the pension fund, told Reuters on the sidelines of the board meeting that of the $1.8 billion, Legg Mason had managed $637 million, Gardner Lewis and NWQ managed $347 million each, Ariel oversaw $246 million and Mazama managed $241 million.
"All five of these managers exhibit inconsistent performance or a high level of tracking error," the pension fund's report said, adding that had caused the fund's $15 billion U.S. stocks portfolio to lag its benchmark over one, three and five-year periods ended May 31.
Separately, the fund also approved the transfer of a $300 million inflation-linked bonds mandate to BlackRock.