By Ross Kerber
Oct 25 Asset manager Legg Mason Inc on
Friday said its quarterly profit rose 7 percent compared with a
year ago as assets and performance fees rose, but reported an
outflow of investor cash from its equity funds.
The results showed both signs of progress and the challenges
facing Legg Mason Chief Executive Joseph Sullivan as he tries to
restore the fortunes of one of the largest U.S. fund firms.
Since taking the helm just over a year ago, Sullivan has
shed smaller operating units, worked to expand Legg Mason's
product lineup and begun revamping relations with the company's
network of investment affiliates, like its Western Asset
Management bond unit and its ClearBridge Investments equity
In an interview, Sullivan said the quarterly results showed
Legg Mason positioned to resume inflows and that the outflows in
equity funds - $4 billion during the quarter - reflected some
unusual circumstances like a previously-announced redemption by
a sovereign wealth fund.
"I don't feel as bad about where we came out on equities as
the numbers would normally suggest," Sullivan said. Flows have
been stabilizing, he said, and "Once we start growing, that
covers a multitude of sins."
Analysts closely watch fund flows as a measure of asset
manager performance. On Thursday, a number of large competitors
also reported quarterly outflows, including T. Rowe Price Group
of Baltimore and Franklin Resources Inc of San
Mateo, California, amid signs of caution from large
institutional investors looking to reduce their risk exposure.
"Investors remain disengaged," said Sandler O'Neill analyst
Michael Kim. That mood in turn is slowing Legg Mason's efforts
to regain investor cash, he said. "The macro backdrop is not
helping them," Kim said.
Legg Mason's assets under management rose to $656 billion at
the end of the quarter from $644.5 billion at the end of June,
due mainly to a $14.2 billion increase in market performance and
Total outflows were $1.4 billion, Legg Mason said, driven by
the $4 billion in outflows from its equity funds. Bond funds and
money market funds took in $300 million and $2.3 billion
respectively during the quarter, Legg Mason said.
For the three months ended Sept. 30, Legg Mason reported net
income of $86.3 million, or 70 cents per share, up from net
income of $80.8 million, or 60 cents per share, in the same
period in 2012. Operating revenue was $669.9 million, up from
$640.3 million a year ago, due mainly to higher equity assets
under management and higher performance fees.
Analysts surveyed by Thomson Reuters I/B/E/S had expected
Legg Mason to report net income of 61 cents per share for the
period, the company's second fiscal quarter. Shares in Legg
Mason were up 0.4 percent at $37.02 in late morning trading.