GLOBAL - William Hunt has stepped down as president and chief executive of State Street Global Advisors (SSGA) on the back of fixed income-related underperformance and a potential legal threat from investors.

A trading statement issued today by the investment giant said James Phalen, head of international investment operations, has been named as its interim CEO while State Street Corporation has set a reserve fund worth $618m on a pre-tax basis "to address legal exposure and other costs associated with the underperformance of certain active fixed-income strategies" managed by the firm and "concerns as to whether the execution of these strategies was consistent with the customers' investment intent" regarding their exposure to subprime mortgages and the associated lack of liquidity.

Discussions with "certain customers" invested in these fixed-income investments are said to have led to the creation of the reserve as well as the resignation of Hunt.

Ron Logue, chairman of State Street Corporation, said despite the creation of this fund, it intends only to compensate what it sees as genuine claims.

"State Street values its reputation as a trusted fiduciary to institutions around the world and recognizes the critical importance of preserving this reputation with its customers," said Logue.

"Some of our customers that were invested in the active fixed-income strategies have raised concerns that we intend to address. Nevertheless, we will continue to defend ourselves vigorously against inappropriate claims, including those that seek recovery of investment losses arising solely from changes in market conditions," he added.

Phalen, 57, will take up Hunt's position while internal and external candidates are reviewed for the SSGA chief role.

In his current role, Phalen is responsible for State Street's investment services and investment research and trading operations outside of North America and is a member of State Street's Operating Group, the company's most senior strategy and policy-making team.

He previously spent over five years at SSgA as a member of its executive management group managing significant portions of SSgA's business and became Citistreet's CEO in 2000 after overseeing the combination of SSgA and Citigroup's retirement businesses.