US fund house Legg Mason is mulling entry to two new markets in Asia and is looking to install a fund manufacturing capability in Hong Kong, its management has revealed.
Hosting a media luncheon in Hong Kong yesterday, chairman and chief executive Joseph Sullivan stressed that the firm’s priority was to focus on three key areas for growth: international business, non fixed income and the retail industry.
Legg Mason, which has $708 billion in assets under management globally, has an on-the-ground presence in Asia in Hong Kong, Singapore and Taiwan, with 60 staff catering to its distribution needs across the three markets. Asia accounts for $80.4 billion of total AUM, or 8.8%.
Asked if it was seeking access to new Asian markets, Lennie Lim, the firm’s head for Asia, pointed to Malaysia and Thailand. It is aiming to introduce its range of products to investors either via local distributors or potentially a joint venture.
Sullivan stressed that Legg Mason sees great opportunities for growth in Asia, with non-US business accounting for 38% of its global AUM and 34% of its revenue. Sullivan said the firm's primary target is to get those to 50:50.
Legg Mason has made two acquisitions this year: of quantitative solutions firm QS Investors and of UK funds boutique Martin Currie, which boasts a range of active Asian, emerging market, global and European equity strategies.
Sullivan said the firm now felt that it had coverage of traditional equity and fixed income markets covered courtesy of its eight principal subsidiaries*.
He noted it was not seeking to add more affiliates, rather to strengthen existing capabilities. “We will add investment capability that’s different to our current offering, or we will add in areas where we don’t have a capability,” he explained.
Overall Legg Mason has 51% of its AUM in fixed income, with 27% in equities and 22% in liquid products. However, equity makes up 48% of revenues, versus 37% for fixed income, 11% for alternatives and 4% for liquidity strategies.
Sullivan added that Legg Mason was eager to increase its exposure to alternative investments, predominantly private equity, energy and infrastructure.
The firm has 74% of its AUM with institutional clients versus 26% for the retail segment, although the latter makes up 48% of its revenues globally.
As such Legg Mason has prioritised Asia’s retail market for growth amid a growing need for diversification away from saturated domestic exposures.
While Sullivan conceded that alternatives were not in tune with the daily liquidity preferences of retail investors, he suggested provision of liquid alts strategies would become much more commonplace.
He added that Legg Mason was eager to work closely with a range of private banks to reach Asia’s burgeoning high-net-worth community and pointed to a trend of greater customisation of products, which he argued was here to stay.
He highlighted continued demand for income solutions and outcome-oriented investments.
Asked whether Legg Mason saw direct distribution to end-investors as of increasing importance, he said this was something the firm was discussing internally, citing US examples of that model as T. Rowe Price and Fidelity.
“We have talked about it, but is this a bridge we want to go down? It would be a significant divergence in our strategy,” he admitted. “Interestingly, as we feel investors are thinking about incomes more, that implies we know what they [retail clients] really want.”
Sullivan said there were both positives and negatives of building a direct business, saying it automatically increased a fund house’s liabilities, but also enabled firms to get closer to clients and do a better job on their behalf.
He noted, too, that Legg Mason was considering launching an active ETF strategy in the US and has had conversations with Boston-based fund house Eaton Vance, which is set to launch a range of exchange-traded managed funds in the US as a hybrid between traditional mutual funds and ETFs.
“There are a number of fund companies applying [to list ETFs with the US Securities and Exchange Commission],” said Sullivan. “We will go for the structure that’s best for our clients. We don’t feel compelled to lead the way on this.”
In response to a question on the appeal of the pending Hong Kong-China mutual recognition scheme, Freeman Tsang Siu For, director of business development and head of China and Hong Kong, suggested Legg Mason was eager to take part.
Asked if that meant the firm planned to base fund manufacturing capabilities in Hong Kong, Tsang agreed that it did.
Legg Mason’s subsidiaries are Brandywine Global (global value investing); ClearBridge Investments (quality focused equity); LMM (US equity); Martin Currie (global equity); Permal Group (global alternative funds of funds); QS Investors (systematic investment); Royce and Associates (small-cap equity); and Western Asset (fixed income).