In a recent government meeting, significant discussions centered around the ongoing investigation involving Ken Leach, the co-chief investment officer of Western Asset Management. Leach has received a Wells notice from the Securities and Exchange Commission (SEC), indicating that the agency is examining a large volume of trades allocated to various Western accounts from 2021 to 2023. The inquiry focuses on potential cherry-picking practices that may have favored certain accounts over others.

While the Wells notice suggests that enforcement action could be recommended, it does not guarantee that charges will be filed against Leach. Following the notice, Leach has stepped away from his position, with Mike Buchanan being promoted to sole chief investment officer. This transition was part of a succession plan established last year, indicating that the firm had anticipated leadership changes.

The meeting participants expressed concerns about the implications of the investigation on Western's governance and performance. Historically viewed as a stable alternative to larger firms like PIMCO, Western has maintained a team-oriented approach rather than relying on a single star manager. However, recent performance issues, particularly regarding bond market strategies, have raised questions about the firm's future.

Participants noted that the SEC's investigation is not the only scrutiny Western faces, as the Department of Justice is also looking into the matter. Concerns about potential outflows from the flagship Core Plus fund were discussed, with one participant highlighting the challenges firms face in adjusting to declining fee generation amid such outflows.

As the situation develops, the committee plans to monitor the investigation closely and reassess their recommendations based on forthcoming information. The meeting concluded with a commitment to remain proactive in response to any new developments regarding the SEC's findings and their impact on Western Asset Management.