Bailout plan soothes shareholders: Legg's Miller
BALTIMORE (Reuters) - Warren Buffett's $5 billion investment in Goldman Sachs shows that shaken investors have been calmed by the $700 billion U.S. financial sector bailout plan and they are reopening their wallets to the industry, fund manager Bill Miller said.
These shareholders had stopped investing fresh capital in financial firms after being "smashed" by losses they suffered from the government's rescue of some large institutions, Miller, a one-time star stock picker at Legg Mason Inc and a big investor in the financial sector, said.
"There's a lot of capital out there ready to come in, as long as it believes that it is not going to be treated punitively if things don't go well," Miller told reporters on Wednesday at Legg's Baltimore headquarters.
Miller was referring to the U.S. government's recent takeover mortgage finance firms Fannie Mae and Freddie Mac and insurer American International Group , which destroyed the value of their common stocks.
Miller's performance has slipped dramatically after his winning streak ended in 2006. He is the only manager to beat the Standard & Poor's 500 index for 15 straight years till 2006.
Legg Mason Capital Management, a unit of Legg Mason of which Miller is chairman and chief investment officer, owned AIG and Freddie in its clients' portfolios.
Miller and other big shareholders have participated in capital raisings of major U.S. financial firms over the past year.
The government takeovers caused an exodus of investors from the financial sector, Miller said.
"If the government seizes all the capital, who's going to put capital in? Nobody. So we stopped putting capital in," he said.
The $700 billion bailout plan, which empowers the U.S. government to buy toxic mortgages at the center of the crisis, paved the way for Buffett's deal with Goldman, Miller said.
"Buffett says OK, I can come in now and I'm pretty confident, not just because Goldman is a dominant firm, but even if they need assistance on their balance sheet, I am not going to get wiped out. Because the policy is no longer to wipe us out," the fund manager added.
LOSING STREAK
Miller said Buffett's investment in Goldman and the billionaire investor's deal to acquire Constellation Energy Group for $4.7 billion showed that the stock market was nearing a bottom.
"He's got a finely attuned sort of psychological sense as to when you are close to the bottom," he said.
His main Legg Mason Value Trust fund is the worst performer in the large-cap growth area among peers and is down 35.9 percent so far this year to Tuesday's close, double the 17.80 percent drop in the Standard & Poor's 500 index, according to Lipper data.
The fund has also shrunk in size -- down to $9.7 billion at the end of June from $16.5 billion at the start of 2008.
Another fund managed by Miller, the $4.5 billion Legg Mason Opportunity Trust fund, was also ranked at the bottom among multi-cap growth funds, losing 36.5 percent so far in 2008.
Miller said the Value Trust would widen its portfolio as valuation spreads across sectors were compressed now. The fund had 35 holdings as of the end of June.
Clients have pulled out $28.8 billion from Legg Mason's faltering equity funds, including Bill Miller's, in the six months up to June 30.
More recently, state pension funds of Massachusetts and Baltimore have axed Legg Mason from managing portfolios due to the funds' poor performance.
But Miller said some new clients were showing interest and Legg Mason Capital Management had recently won an institutional mandate that brought in more than $1 billion in assets.
(Editing by Anshuman Daga)