How Bill Miller Made $137 Million in 3 Years

Bill Miller has turned in perhaps the worst streak in modern mutual fund history. He has put up trailing one, three, five and ten year numbers relative to his peers that I have never seen a mutual fund manager survive without jumping out of a window, or getting fired. But, according to the Wall Street Journal, Legg Mason CEO Mark Fetting is standing by his man:

Mark Fetting, Legg's chief executive and chairman of the board that oversees Mr. Miller's funds, said he supports Mr. Miller and his plans to improve performance. WSJ

While ultimately the board's that oversee Miller's funds will make the call, they might want to consider clawing back part of the money paid Miller in the middle of this decade, given a lucrative, and highly unusual compensation arrangement Miller was able to cut. This deal that would probably make Mario Gabelli, well known for fat paychecks, jealous:

In 1999, he cut an unusually lucrative deal with Legg Mason to take the reins of Opportunity Trust, a new fund. The fund's management fees went to an entity half-owned by Mr. Miller. From 2005 through 2007, Opportunity Trust paid the entity $137 million. In 2006, he bought a 235-foot yacht, "Utopia." WSJ

While I don't own the stock, I would expect Legg Mason (LM-NYSE) shareholders, who have been annihilated, to storm the gates of Legg's Baltimore headquarters with pitchforks. They won't need a lighter or torches, one investor in Miller's Value Trust already has that base covered:

“Why didn’t I just throw my money out of the window—and light it on fire?” says Peter Cohan, a management consultant and venture-capital investor who owns Value Trust shares. Mr. Miller’s strategy, he says, “worked for a long time, but it’s broken.”

But at least Bill is honest, and smart. When he visits restaurants he sits with his back to the wall.

“Every decision to buy anything has been wrong,” Mr. Miller said over lunch at a private club housed inside Legg’s headquarters. In the 16th-floor dining room, Mr. Miller sat with his back against the wall, a preference he says he picked up as a U.S. Army intelligence officer in the 1970s. “It’s been awful,” he said.

I have now seen it all. A fund manager who kept his job despite possibly the worst streak in modern mutual fund history, and a compensation deal that would make hedge fund managers blush.

I would love to hear Chip Mason explain this one, but that is now Fetting’s job. Of course, the $137 million is only the compensation from the mid-cap fund Bill manages. He probably made money on top of that.

The Wall Street Journal has all the details. Miller continues to stall for time, he is tweaking his “screens”, and reading a book about Keynes.

You gotta be kidding me.

To borrow a line from another old value dude, I am not making this up.

Utopia, indeed.
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Bill’s Yacht “Utopia” for Charter

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Spring 2008

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The Stock Picker’s Defeat
WSJ

Previously

June 3rd
Bill Miller’s Last Stand
1440 Wall Street

Bill Miller: Master of Disaster
1440 Wall Street

Bill Miller Puts on His Marketing Hat
1440 Wall Street

Legg Mason Spins the Bill Miller Disaster
1440 Wall Street

Bill Miller’s Outperformance “Deferred”
1440 Wall Street
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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No Position

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