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Active Management · Asset Management · Investment Outflows · Key-Person Risk
Ken Leech, former co-CIO of Western Asset Management Company, a subsidiary of Franklin Resources, faces SEC and Department of Justice charges for an alleged cherry-picking scheme, resulting in approximately $120 billion in client outflows from Western Asset since the investigation was disclosed in August.
Since charges were announced in late November, Western Asset experienced nearly $68 billion in long-term net outflows by December 31, 2024, with over half occurring in December alone, as reported by Franklin. Leech, once a renowned bond manager, was the face of Western's fixed-income aptitude, and his departure and subsequent legal issues have had enormous consequences, including Franklin's announcement of a three percent workforce reduction, though no investment professionals were impacted.
The incident highlights the significant key-person risk that asset management firms face, prompting a broader industry shift towards emphasizing team-based investment approaches over individual "star" managers. While some advisors, like Filip Telibasa of Benzina Wealth, view active management as a "thing of the past" favoring passive investing, others, such as Leibel Sternbach of Yields4U, argue for its comeback, particularly for risk management and income generation.
Max Curtin of Morningstar Research Services notes that outflows at Western also stemmed from performance issues prior to the investigation, complicating the analysis of the impact of Leech's departure alone.
