By Ross Kerber
BOSTON Feb 13 Newly-named Legg Mason Inc
chief executive Joseph Sullivan on Wednesday vowed to staunch
the outflow of investor money from its funds and to renew
relations with its investment units - two critical steps to
rebuilding the Baltimore-based asset manager.
Sullivan, in a telephone interview shortly after he was
officially named CEO, said he remains committed to Legg Mason's
traditional structure of semi-autonomous investment units and is
in talks with executives at the units about offering them
equity. He did something similar for its Permal unit in December
where executives now may receive equity in their own firm, as
they could not previously.
Giving managers their own equity "gives them real
ownership," Sullivan said. Similar deals for other affiliates
could help them recruit and retain executives, he said, and
could make Legg Mason more like its more successful rival
Affiliated Managers Group.
Among Legg Mason's eight main affiliates are the Western
Asset Management bond shop and its Royce & Associates division
that invests in smaller companies.
Relations between some affiliates and the parent have been
strained over finances and marketing issues, a problem Legg
Mason could not afford during nearly five years of outflows of
investor funds from the company overall, amid mixed fund
Many funds are recovering however, and Sullivan said
improving investment performance will bring investors back into
the company's wide range of mutual funds and other products.
"We are proof of the fact that this doesn't happen
overnight," Sullivan said.
Sullivan had been the company's sales chief and interim CEO.
Legg Mason had been seeking a new CEO since Mark Fetting stepped
down under pressure last fall. Sullivan was also named president
and a board member on Wednesday.
Reuters first reported Sullivan's appointment late Tuesday.
In addition, Legg Mason on Wednesday named a new board
member, Dennis Kass, who retired last year as CEO of Prudential
Financial Inc's Jennison Associates money management
SIGNALING FEWER CHANGES
Choosing Sullivan signals that Legg Mason's board is less
inclined to make the sweeping changes that an outside candidate
might have begun, analysts said.
"Instead of disrupting the apple cart too much, they went
with the guy that they knew, but brought in an outsider to the
board," fund industry consultant Roland Meerdter said.
Legg Mason board chairman Allen Reed said Sullivan has the
background and management skills that Legg Mason needs. Reed
also said Sullivan has good relations with other company
leaders, a point supported by Terrence Murphy, CEO of Legg
Mason's ClearBridge equity unit in New York.
Murphy acknowledged tensions among the units but said that
Sullivan "is definitely the right guy to solve them" because he
is well-respected by division leaders.
One challenge, Murphy said, is that affiliates want more
help from the parent selling their funds, like food suppliers
looking for more display at a supermarket. "It's not a perfect
model because everyone is always looking for more shelf space,"
Sullivan, 55 years old, has worked at Legg Mason for most of
the last 19 years, with a break between 2005 and 2008 after Legg
Mason sold the broker-dealer subsidiary where he worked to
Stifel Financial Corp.
"I viewed it as being exiled. I finally paid my dues and
they let me come back," Sullivan said.
The decision follows a five-month search process led by
recruiting firm Korn/Ferry International.
Sullivan's appointment removes an overhang on the shares and
allows the company to focus on improving flow trends, Sandler
O'Neill analyst Michael Kim wrote in a note to investors.
But the decision also lessens the likelihood of a
private-equity buyout of the company, Kim wrote, as some of the
affiliates had discussed.
Given ongoing declines in assets and uneven performance
track records, "we see more limited upside for the shares," said
Kim, who kept his "hold" rating on the stock.
Legg Mason shares were down 2.19 percent at $27.30 in midday
trading after the news was announced.
Sullivan was seen as the inside favorite for the job by some
employees and had already made changes during his interim tenure
that could foreshadow more to come.
In December, for instance, Legg Mason agreed to buy
London-based hedge fund firm Fauchier Partners and renegotiated
the terms with Permal.
With $654 billion under management at the end of January,
Legg Mason is one of the largest publicly traded U.S. asset
managers, but its shares have lagged those of its peers.
Sullivan's predecessor, Fetting, took over Legg Mason from
founder Raymond "Chip" Mason in early 2008.
Fetting restructured Legg Mason and slashed its workforce to
cut costs. Both moves were in keeping with the usual agenda of
activist shareholder Nelson Peltz, who joined Legg Mason's board
in 2009 and holds about 10 percent of its shares.
A spokesman for Peltz's investment firm Trian Fund
Management said in a statement on Wednesday that the firm is
"enthusiastic" about Sullivan's appointment.