(Bloomberg) -- Franklin Resources Inc. will start taking over parts of its Western Asset Management Co. unit as the bond house grapples with a Securities and Exchange Commission investigation into its star bond manager, Ken Leech.
Wamco’s parent firm will begin incorporating its middle office into the larger firm’s operations, Franklin Chief Executive Officer Jenny Johnson and Wamco CEO Jim Hirschmann told staff at a town hall last week, according to a person familiar with the matter.
As part of the integration, Franklin will cut jobs at Wamco, said the person, who asked not to be identified because the matter is private.
The shift hints at the end of Wamco’s prized independence from Franklin, which bought the bond firm in 2020 through its acquisition of rival Legg Mason. At the time, Franklin allowed Wamco to retain a significant portion of its revenue and agreed to hold off on broader integration beyond basic marketing and distribution for five years.
A spokesperson for Franklin declined to comment.
Wamco has been struggling to contain heavy outflows after it disclosed that the SEC is investigating three years of Leech’s trading. Since then, the firm has bled more than $50 billion as pension funds and other clients withdraw their money and shift the capital to rivals.
Speaking at the meeting through a video call, Johnson said the investment team will be left unchanged for now, the person said.
During an earnings call last week, she told analysts that Franklin was working with Wamco’s management team “to explore ways to assist Western Asset, including adjustments to economic arrangements, operational and revenue synergies.”
Wamco had been struggling with client redemptions for a few years before the SEC probe as lackluster performance sparked outflows and exits among senior employees. Leech’s flagship Core Plus Bond fund manages less than $10 billion, down from $19 billion in August.
©2024 Bloomberg L.P.