Wamco loses Russell Bond Fund as fallout over star dealer probe escalates

The $2.2 billion Russell Strategic Bond Fund is winding down the portion of its assets allocated to Wamco to “zero,” according to a filing Friday. Russell expects to “formally terminate” Wamco’s role at the fund by year-end, pending board approval.

Wamco, which has been losing clients for years, was hit by a fresh wave of investor redemptions after disclosing last month that Leech, its co-chief investment officer, faces possible enforcement action by the US Securities and Exchange Commission. Leech took an immediate leave of absence, and the uncertainty about his status is a “considerable concern,” pension consultant NEPC said in the wake of the announcement.

A spokesperson for Wamco, a unit of Franklin Resources Inc., declined to comment on Russell’s decision. 

SEI Investments Management Group also disclosed Friday that it was removing Wamco as the subadviser for six mutual funds, including SIIT Core Fixed Income, SIMT Core Fixed Income, New Covenant Income, Catholic Values Fixed Income, Short Duration Municipal and SEI Multi-Asset Income. The assets that Wamco had managed will be allocated to other existing subadvisers.

Russell, which uses multiple subadvisers for some of its funds, evaluates factors such as performance, investment personnel and market conditions when evaluating whether to hire or fire a third-party manager, a spokesperson for the firm said in an emailed statement.

“The change is the result of Russell Investments’ ongoing, robust approach to manager selection,” the spokesperson said. “This includes continuous evaluation of all managers in our portfolios relative to our stable of highly rated managers.”

Russell itself was overseeing almost half of the strategic bond fund’s assets as of midyear, with the rest allocated to Wamco and two other firms. A fact sheet shows that Wamco’s target allocation was 11% — the smallest share among the three subadvisers — suggesting it was managing more than $200 million of the fund’s assets. 

Fund Struggles

The bond fund has struggled lately, with an average annual loss of about 0.5% over the past five years, ranking it near the bottom among rival funds that follow a comparable strategy. The fund’s total assets have shrunk by almost half in that span.

In 2022, when the fund tumbled about 14%, Russell attributed the performance in part to Wamco’s wagers on lower-quality bonds and the direction of interest rates. The fund realized a big loss on Treasury futures that year, according to its filings, as did Leech’s Western Macro Opportunities Fund, which is now being shuttered.

Wamco’s Macro Opportunities strategy incurred net outflows of $900 million last month, cutting assets to $1.1 billion, according to a statement this week. Redemptions also left the firm’s flagship Core Plus fund with less than $15 billion.

Firmwide, Wamco managed $377 billion at the end of last month, up slightly from July, as market gains and inflows to cash-management products such as money-market funds offset the $7.7 billion in long-term net outflows. 

(Updates with SEI funds in fifth paragraph.)