Legg Mason targets 2012 M&A for alternatives

CEO Mark Fetting says the global fund management company wants to acquire alternative capabilities to complement the group’s Permal business.
Legg Mason targets 2012 M&A for alternatives

Mark Fetting, Baltimore-based CEO at Legg Mason Global Asset Management, says the group is keen to acquire additional capabilities in alternative investments and boost the Asia capabilities of the various fund businesses operating within the Legg Mason structure.

Legg Mason, with $655 billion of assets under management, operates as a platform for a variety of specialist managers, including Western Asset in fixed income (the group's largest unit with $447 billion of AUM), ClearBridge in equities, Royce in small-cap equities and Legg Mason Capital, an equity value manager co-led by investor Bill Miller.

In addition it owns the Permal funds-of-hedge-funds business, one of the biggest in the world, with $23 billion of AUM; it now contributes around 16% of group revenues. Fetting says the group needs to add more capabilities in alternative investments, both to diversify its own book as well as to provide more diversification outlets to its clients.

He expects the alternatives industry to continue to consolidate, as many players struggle to grow in the post-financial crisis environment. “We’ve seen exits and combinations coming out of the crisis, and I expect that to continue,” Fetting says.

Legg Mason would be interested in either adding new teams to the Permal business or creating new groups within the group structure. It will look at the entire range of alternatives, including single hedge funds, private equity funds, funds of hedge funds, funds of PE funds, real estate, commodities and infrastructure.

In the meantime, Legg Mason has been prepared to help existing businesses launch new products in the alternatives space. For example, it contributed up to $20 million of seeding to a Permal China fund, which now has $200 million of AUM.

No deals are imminent. Fetting says the group is focused on streamlining the administrative and operations at the central level. As part of a general, post-crisis re-evaluation of the firm, Legg Mason has been shifting more of its operations to the company level, rather than keeping them at a parent one. This runs the gamut from procurement to fund administration, wherever the group has found its corporate centre isn’t adding value.

That streamlining process is meant to finish by the end of 2011, with a formal deadline of the end of its fiscal year in March 2012. At that point, corporate management will turn its focus to acquisitions and helping affiliated businesses to grow.

Asia remains another focus, says Fetting. Today the group’s various Asia-Pacific businesses contribute just under 15% of AUM. Fetting expects AUM and revenues from the region to grow faster than other parts of the world, and for that 15% mark to rise, although he declined to comment on specific targets.

One prospect is a representative office in Beijing. More generally, different arms of the group are expected to boost headcount in Asia, in line with the region’s own maturing capital markets. Legg Mason employs about 3,200 people worldwide, of whom only around 200 are based in Japan and 80 in Asia ex-Japan.

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