Permal Sees No Liquidity Problems After Banks Say Otherwise

Jun 20 2011 | 12:05pm ET

Legg Mason's booming fund of hedge funds business has denied that it could face a liquidity crisis in the face of large redemptions.

Permal Group, which manages $23 billion, moved to assure Bank of America Merrill Lynch clients that there is no cause for concern, despite the fact that two other banks say otherwise, The Wall Street Journal reports. Both Citi Private Bank and Morgan Stanley Smith Barney have expressed skepticism about Permal's multi-strategy Investment Holdings and Fixed Income Holdings funds, recommending that their clients stop investing in or pull out  of the funds entirely.

Both firms expressed skepticism about Permal's ability to quickly meet redemptions. Citi advised that investors sell the multi-strategy fund and added a hold on the fixed-income fund, while Morgan Stanley put the former on its watch list.

In the June 8 letter to BofA clients, Permal said "virtually all" of its many intermediaries and consultants "confirmed" its own views on its liquidity. The firm's assets are up 20% over the past year, including mandates from institutional investors that have "stabilized" the investor base.

"We believe that the duration of our assets across these portfolios is completely appropriate and consistent with the risk/reward and liquidity profiles that we strive to achieve for each mandate," Isaac Souede, Permal's president, wrote.

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