* Latest deal in fast-consolidating sector
* Acquisition will create a $24 billion unit
* Many hedge firms reporting outflows and dwindling margins
By Laurence Fletcher and Ross Kerber
LONDON/BOSTON Dec 13 U.S. asset manager Legg
Mason Inc said on Thursday it will buy Fauchier Partners,
one of London's oldest fund-of-hedge-funds firms, from BNP
Paribas Investment Partners, the latest deal in the
London-based Fauchier, which manages $6 billion in assets
and has been tipped as a possible sale target since 2011, will
be merged with Legg Mason's fund-of-funds firm Permal, creating
a unit with $24 billion in assets under management.
Typically, a fund-of-funds firm holds a portfolio of other
investment funds, sometimes in addition to its own direct
investments in securities.
Legg Mason also said it has revised employment deals and
other arrangements with Permal, which could become a model for
additional changes aimed at resolving tensions among its
affiliated investment units. Legg Mason is seeking a new chief
executive and faces continued outflows from its well-known
In addition, Legg Mason said it will take after-tax charges
of $460 million to $550 million for asset impairment. The
reasons for the charges include stock price uncertainty as the
company searches for a new CEO, and continuing outflows, Legg
Mason said in a regulatory filing.
Shares in Baltimore-based asset manager were up 14 cents at
$25.59 in morning trading.
The Fauchier deal comes as firms in the $636 billion
fund-of-funds sector try to beef up assets or pick up rivals on
the cheap as the industry struggles to recover from the credit
crisis. Many firms have reported withdrawals of investor cash
and dwindling margins since the credit crisis; some were also
hurt by investing with U.S. fraudster Bernard Madoff.
Deals this year have included Franklin Resources'
buying a majority stake in K2 Advisors, private equity group
Kohlberg Kravis Robert's buyout of Prisma Capital
Partners, and Man Group's purchase of FRM.
The combined business of Permal and Fauchier will have about
60 investment professionals in New York, London, Paris and
Singapore, led by Permal's Robert Kaplan and Fauchier CEO Clark
Permal President Omar Kodmani said the deal will help his
firm maintain the critical mass needed in the industry. "You
really can't compete if you're sub-scale," he said in a
telephone interview in London.
Kodmani said the two businesses are complementary. "They
(Fauchier) are stronger in equity long-short and event-driven,
while we are stronger in global macro and fixed income credit.
In the client base, we have a large U.S. institutional client
base while they have (a strong) UK business," he said.
Legg Mason said the deal would close in the first quarter of
2013 and add to earnings in the first year. It did not disclose
the terms of the deal.
Prices are hard to estimate, but Man Group's recent purchase
of FRM was seen by many industry executives as a deal done on
the cheap. Man made no upfront payment, instead paying a maximum
of $82.8 million cash for FRM's $8 billion in assets, depending
on asset retention, plus additional payments depending on
performance fees earned.
In late 2010, Fauchier Partners, which was founded in 1994,
froze two funds after volatile post-crisis markets triggered a
wave of investor withdrawals. In 2011 BNP decided to regroup its
alternative-asset brands, leaving out Fauchier, a move that
fueled speculation a sale was in the works.
NEW INTERNAL DEALS?
Legg Mason has been roiled by customer outflows and mixed
investment performance in recent years.
In addition to Permal, other Legg Mason affiliates include
its big Western Asset Management bond unit, its ClearBridge
Advisors equity unit, and its Brandywine Global equity and bonds
A source of tension within Legg Mason has been the
revenue-sharing arrangements among the units and the parent
organization. A Legg Mason spokeswoman, Mary Athridge, said in a
telephone interview that while the revised arrangements are
"specific to Permal, we will look at ways to incentivize key
A board member of Legg Mason is the activist investor Nelson
Peltz, known for breaking up companies in other sectors in which
he invests. Through his investment firm, Peltz holds about 10
percent of Legg Mason shares. Previous limits on Peltz's
ownership of Legg Mason shares have expired but he has declined
to discuss his intentions.
According to Legg Mason, BNP and Fauchier were advised on
the deal by investment banker Freeman & Co and the law firm of
Allen & Overy. Legg Mason and Permal received legal advice from
Dechert LLP and handled financial aspects of the deal