Legg Mason CEO Joe Sullivan talks to Anna Fedorova about the group's plans to get newly-acquired boutique Martin Currie firing on all cylinders.
US giant Legg Mason has a long history of acquiring affiliate business, with the latest purchase of Edinburgh-based equity boutique Martin Currie, bringing the total number of affiliates up to seven.
Since the financial crisis, acquisition activity has been subdued, but this year the group came back with a vengeance as new chief executive Joe Sullivan started to implement his plans.
Sullivan (pictured) took the role officially last February, having served four months as interim chief executive. Previous CEO Mark Fetting stepped down in October 2012, allegedly giving in to pressure from shareholders following a slump in the group’s share price.
We want to have fewer, but larger, affiliates that we can get behind and market
Sullivan, who was previously global head of distribution at the business, has already begun injecting new energy into Legg Mason: this year has seen the acquisition of QS Investors, while Martin Currie is set to officially become an affiliate before the end of the year.
His efforts have lifted the US-listed firm’s share price substantially although, unlike many competitors, it remains well below its pre-crisis peak.
Sullivan is not content to sit still, remaining on the lookout for further acquisitions to pad out the already extensive range of products available to investors through Legg Mason’s subsidiaries.
The Martin Currie deal, in particular, could be a big driver of future growth if the group can get the Asian equity specialist firing on all cylinders.
The acquisition of Martin Currie was a significant step for the firm, aimed at closing the product gap in the equity space: until now, Legg Mason has only offered US equities through its affiliates, but has been looking to expand this focus for a long time.
According to the latest quarterly results to 30 June, equity made up just 28% of Legg Mason’s total assets, while 52% was held in fixed income and the rest in liquidity products. Over the quarter, equities also saw outflows of $1.8bn, while fixed income products took in $2.5bn, widening the gap between the two.
The US giant had been chasing the deal with Martin Currie for some time because the Edinburgh-based manager offers the Asian-focused products Legg Mason lacks.
Sullivan said: “We have been talking about this for years; at first it was not Martin Currie’s intention to be sold, but eventually we came to a conclusion we would be better off together. It has the equity propositions we have been missing: strategies focused on China, emerging markets, and global equities.”
Martin Currie’s OEIC range consists of eight funds: five so called ‘benchmark-relative’ equity funds investing in various geographical regions, and three unconstrained funds: Global Alpha, Global Equity Income, and Japan Alpha.
Altogether, the range makes up £500m of the group’s £5.7bn AUM. The firm also runs a SICAV range for European clients, three investment trusts, and an offshore fund range.
The only overlaps between the products offered by Martin Currie and those available through other Legg Mason firms are the US and Japanese equity mandates: Martin Currie runs a Japan Alpha fund and a North American fund, which has struggled with performance over recent years and saw a new manager, Penny Kyle, appointed in 2012.
Over one year to 11 August, performance has improved, according to FE, but it remains in the third quartile of the IMA North America sector, returning 5.9% versus an average of 5.5%.
However, Sullivan said Legg Mason will keep “everything Martin Currie has” and may also seed new funds or hire new managers or teams to accelerate its growth and expansion plans.
“This transaction is about growth,” he said. “It just makes a statement that we are here to stay [in Europe]; we are committed to being a global company and expanding our percentage of international business.”
In five years’ time, Sullivan sees Martin Currie becoming a leading manager of active global equities, despite some of the products, such as China and emerging markets equities, dropping out of favour at times when investor sentiment is negative.
“With Martin Currie, we have added breadth across asset classes,” he said. “As flows move globally, there are times when certain products are in and out of favour, but Martin Currie is back to growing on its own, and we can help elevate its brand further.”
Sullivan said the group now wants to focus on bedding in Martin Currie’s teams, but he remains open to growing via further acquisitions in future.
The group remains somewhat light when it comes to alternatives, for example, and Sullivan said his eye will be on private equity, infrastructure, real estate, or energy-related investment products, which offer clients exposure to less liquid areas of the market.
“We are not looking for another fixed income or equity manager. But we are intrigued by more alternative areas, such as private equity, infrastructure, real estate or energy: longer term initiatives and more interesting strategies, where we do not have exposure,” the CEO said.
“We have plenty of dry powder [for another acquisition], but we would have to think about how to do that. We like doing strategic deals which are not huge bets on the market, but a bet on the people and our distribution capabilities.”
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