Western Asset Management has recently gotten into the Mortgage Real Estate Investment Trust game with the launch of Western Asset Mortgage Capital Corporation (WMC) on May 15th. WMC pays a quarterly dividend of $.85/share (15.3% annualized dividend yield) and 17% of the May IPO was collectively purchased by Pine River Capital and the Southern California Edison Company (Employee) Retirement Plan Trust. WMC paid a Q2 2012 dividend of $.38 per share for the partial quarter period that it operated in. WMC’s partial quarter dividend of $.38/share represented an estimated $.76/share quarterly dividend distribution assuming it paid the same level of dividends throughout the quarter and the $.85/share dividend represents a nearly 12% increase relative to the previous quarter’s estimated quarterly dividend distribution of $.76/share. WMC also priced a secondary offering of stock as Q3 2012 ended.
We remembered Western Asset Management as one of the big three fixed income investment management boutiques behind PIMCO and BlackRock. WAM was founded in 1971 as a subsidiary of United California Bank and acquired by Legg Mason (LM) in 1986. WAM’s growth was bolstered by the acquisition of Lehman’s London-based asset management operations in 1996, the Singapore-based Rothschilds Asset Management in 2003 and Citigroup Asset Management’s fixed income asset management operations in 2005. Until 2008, WAM had an almost impeccable reputation with regards to fixed income investment management. When the financial crisis was at its worst points in 2008, the performance of WAM’s mutual funds and separate accounts were putting up subpar performance against its competitors. According to Morningstar, nearly all of its bond funds put up performance that ranked within the bottom 10%-35% with regards to the applicable fixed income peer groups. WAM has recovered from this low and its funds have earned a weighted average Morningstar Star Rating of 4.1 for its taxable bond funds as of Q3 2012.