Legg Mason is combining its two US equity affiliate companies as value-management star Bill Miller separates himself from those businesses. The result will impact a range of Legg Mason products registered in Asian markets, and possibly create the heft required for the new entity to step up its sales efforts in Asia.
The decision follows recent speculation over the fate of Legg Mason. Reuters reported last week that some of its senior managers discussed taking the firm private with private equity firms, but that senior management decided to postpone any changes.
Legg Mason Capital Management’s $7 billion business in Baltimore will be integrated into the much larger, but less well known, New York-based affiliate, ClearBridge Advisors. ClearBridge, a fundamental, bottom-up stock-picker, has closer to $60 billion of assets.
Bill Miller has worked at Legg Mason since 1981 and as a successful proponent of value investing in US equities became one of the industry’s biggest stars.
His Legg Mason Capital Management Value Trust fund beat the S&P 500 index, net of fees, every year from 1991 to 2005. He stumbled in the 2008-09 crisis, one of many bull-market reputations undone during that period. But in a subsequent visit to Hong Kong, he delivered a very funny and prescient outlook for US equities.
Miller is going his own way, not with the Value Trust – he handed that portfolio to CIO Sam Peters last spring. Instead he is setting up his own entity which he will partly own, albeit still within the Legg Mason framework. He will take with him the much smaller Opportunity Trust mutual fund. He is expected to rebrand that strategy in the near future.
ClearBridge Advisors’ roots go back to the mid-1960s, and the firm populated by many veterans from Smith Barney, Salomon Brothers and Citigroup Asset Management, which was acquired by Legg Mason in 2005. The CEO is Terence Murphy, an ex-Citi AM CFO. The co-CIOs are Hersh Cohen, who has been with related organisations since 1969, and Scott Glasser, with a predecessor firm since 1993. (AsianInvestor previously interviewed Miller and Glasser.)
To date, ClearBridge does not have an Asia presence, and the executives do not travel much outside the US. It does have funds registered in Hong Kong, Singapore and Taiwan, supported by Legg Mason’s distribution arm, called Legg Mason Global Asset Management. ClearBridge also has some Asian institutional mandates.
People inside the firm say ClearBridge is looking to grow its ex-US business. For the time-being this will involve more fly-ins for pitches and client service. However, with the addition of Legg Mason Capital Management’s business and the need to expand overseas, Asia will become a bigger target.
The parent company and its affiliates will review the two businesses for synergies. Sam Peters is expected to be integrated into the combined portfolio team as a senior manager. There will likely be cuts from marketing to operations, and among portfolio and analyst teams where there is too much duplication. But at this stage, no decisions have been made, and the integration itself won’t begin until after the summer.
The timing of the deal may reflect the departure of several senior people from Legg Mason Capital Management over the past year or so; and bad performance at Legg Mason Capital Management, which last year saw roughly $10 billion or more of investor redemptions.
Insiders say the idea of combining the two businesses has been discussed for several years, as the parent would prefer to have a single brand representing US equities. The deal may have also been spurred by Nelson Peltz, an activist investor who joined the Legg Mason board last year.
Legg Mason is the fourth-largest publicly listed asset manager in the US ($3.4 billion market capitalisation); it recently fired CEO Mark Fettering and is being run in the interim by acting CEO Joe Sullivan.
Legg Mason has a number of umbrella asset-management groups. Two that are active in Asia are Western Asset, the fixed-income giant, and Brandywine Global Investment Management. Although many firms successfully run such multi-boutique types of structures, Legg Mason's various components have been acquired over the years and remain a patchwork, not an integrated whole.
The consolidation of the two equity shops could be just a taste of more to come as Legg Mason battles to improve its stock price and possibly revisit ideas around going private.