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Legg Mason CEO Steps Down

T. Rowe Price readies an ultra-short bond fund, and David Resnick finally arrives at Third Avenue.

Morningstar Fund Analysts, 09/13/2012

Legg Mason surprised some analysts with the announcement that chairman and CEO Mark Fetting will step down on Oct. 1. There had been no apparent signs that Fetting--just the second chief executive in Legg Mason's 36-year history--was heading for the exit. After Fetting's departure, lead independent director W. Allen Reed will step in as nonexecutive chairman, and Joe Sullivan, head of Legg Mason's global distribution, will become interim CEO until the board appoints a permanent chief executive.

During his tenure as president and CEO, which began in January 2008, Fetting oversaw a tumultuous period for the firm. Performance slumped badly at flagship fund Legg Mason Capital Management Value LMVTX and, in April of this year, star manager Bill Miller handed that fund's reins to his comanager, Sam Peters. All told, investors yanked more than $31 billion in mutual fund assets from Legg Mason between January 2008 and July 2012, according to Morningstar estimates.

Asset flows have stabilized more recently as investors continue to put money into Legg Mason's fixed-income offerings, including Legg Mason Brandywine Global Opportunities Bond GOBAX and Western Asset Core Bond WABAX. The firm is currently on pace to record positive net inflows for the first year since 2006, according to Morningstar data. Still, as Morningstar equity analyst Greggory Warren notes, the firm's AUM has not kept pace with asset-manager peers in recent years. Warren also suggests that a potential proxy battle with activist investor Nelson Peltz--who could push for a sale or breakup of the company--might have been the catalyst for Fetting's departure.

Fetting will remain with the firm as a consultant through year-end. For now he will also retain his position on the boards of Legg Mason Capital Management and Royce & Associates.

T. Rowe Dives Into Ultra-short Bond Territory
T. Rowe Price has filed to launch its first ultrashort bond fund in December. The proposed fund would provide a higher-risk alternative to investors who aren't satisfied earning minuscule yields on traditional money market funds. The fund will be managed by one of the firm's experienced money market managers, Joseph Lynagh, who also runs T. Rowe Price Prime Reserve (PRRXX) and T. Rowe Price Tax-Exempt Money (PTEXX), among other charges.

This marks the third ultra-short fund launch of the year, following a busy 2011 when Fidelity, Oppenheimer, Putnam, and Pioneer all launched ultrashort bond funds. The category hemorrhaged assets during 2008's subprime crisis, but since then has grown to roughly $45 billion, from a low of $18 billion in December 2008. Meanwhile, more than $1 trillion has left money market funds over this time frame, according to Morningstar estimates.

The median 12-month yield for the ultrashort bond category is currently 1.0%, but that additional income over near-zero money market yields comes with added risk. The typical taxable money market fund adheres to the stable $1 net asset value convention and has an average effective maturity of three months and an average effective duration of just 0.17. The typical ultra-short bond fund, however, has an average maturity of more than two years and an average duration of 0.67 years.

Distressed Investing Vet Officially Joins Third Avenue
On Sept. 11, Third Avenue Management announced that David Resnick has officially joined Third Avenue as president and a member of the firm's investment team. Resnick--who previously had served as chairman of Rothschild Inc.'s Global Financing Advisory practice--has considerable experience working on restructuring and bankruptcies, including advising the board of AIG AIG in its restructuring with the U.S. Treasury. In July, Morningstar's Bridget Hughes responded to early reports of Resnick's hiring, concluding that Resnick's expertise should prove a positive development for Third Avenue--a firm that has succeeded with distressed investing in the past.

Morningstar fund analysts cover more than 1,700 mutual funds and write regular commentary covering fund industry news, fund investing trends, picks, portfolio planning, international investing, and more.
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