Chicago teachers prepare to divest from Wamco Fund

(Bloomberg) — Chicago Teachers’ Pension Fund is preparing to liquidate its investment in one of Western Asset Management Co.’s flagship bond funds, in an early sign of the potential fallout from federal investigations into the company.

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The pension’s investment committee voted Tuesday to recommend ending Wamco’s Core Plus fixed-income mandate, Chicago Teachers Chief Investment Officer Fernando Vinzons said in an emailed statement. Wamco managed $550 million for the pension fund at the end of June.

The move adds to the pressure on Wamco as its longtime CIO, bond trader Ken Leech, took an immediate leave of absence amid the investigations. The asset manager said it was cooperating with the US Department of Justice as well as the Securities and Exchange Commission, and that the regulator’s staff had already sent Wells a notice warning it could recommend enforcement action.

The Chicago teachers board’s next meeting is scheduled for Sept. 19, the earliest it will take action, according to its statement.

A spokesman for Pasadena, Calif.-based Wamco, a unit of Franklin Resources Inc., declined to comment. Shares of Franklin have fallen 10% since Wamco disclosed the SEC warning last week.

The U.S. probe is focusing on whether some customers were favored over others by choosing lucrative deals, people familiar with the matter said last week.

The firm, which is also conducting its own investigation, is looking at 38 accounts across three strategies, a person with knowledge of the situation said at the time. That review found no evidence that Leech had personal or professional motivations to favor one strategy over another, the person added.

(Updates with description of questions and stock performance from fifth paragraph.)

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