Investors are being tempted by the 6.2% gains this year by hedge funds betting on distressed assets and restructuring.
"We think assets that are less exposed to economic growth are likely to perform relatively well," said Mike Swell, a global portfolio manager at Goldman Sachs Asset Management.
Benchmark government yields are within about 22 basis points of a record low in the U.S.
The hedge fund's investment to-date in the New York-based bank is valued at more than $1.25 billion.
The stock picker, known for beating the S&P 500 Index for 15 straight years when he ran the Legg Mason Value Trust, will buy Legg Mason's stake in LMM, an investment adviser that he and the company jointly own.