(Corrects 13th paragraph to state that Legg, not Permal, will
receive greater revenue share)
* Firm in talks with affiliates to increase equity stake
* CEO: Permal's revenue share was "too high"
By Jessica Toonkel
Feb 1 Legg Mason Inc sees a new
revenue-sharing agreement with its Permal affiliate as a "good
framework" for similar deals with other units, interim Chief
Executive Joseph Sullivan said on Friday.
The Baltimore-based fund company, which has $648.9 billion
in assets under management, is in talks with other affiliates
about altering their revenue sharing plans to include a bigger
equity component, Sullivan said on a conference call after it
reported quarterly earnings.
Reworking revenue sharing to provide more equity to
affiliate employees should help with recruiting and keeping key
employees, Sullivan said on the call.
"It helps them to think longer term," he said.
Legg may also use the model for future acquisitions,
Legg has been built over the years through a patchwork of
deals, resulting in eight main independent asset management
units, each with separate revenue-sharing agreements.
A pending merger between its equity-focused ClearBridge
Investments and Legg Mason Capital Management units will soon
reduce the total to seven.
Tensions have emerged, with some affiliates saying they
should get help from the parent company with selling and
marketing their funds, given how much revenues they turn over,
sources have told Reuters
In December, Legg Mason said it was acquiring Fauchier
Partners, a fund-of-hedge-funds firm with $6 billion in assets,
from BNP Paribas Investment Partners, and merging it with
Permal, a $17 billion fund-of-funds firm.
As part of the deal, Legg said it had revised employment and
revenue-sharing agreements with Permal. Sullivan said that could
be a model for additional changes aimed at other affiliated
The main reason Legg reworked the revenue share with Permal
first was because it was too high since it was set in 2005, when
markets were much stronger, Sullivan said on the call.
"We have been supporting them for the last few years and
effectively had a lower revenue share as a result of it,"
However, when business returns, the agreement allows for
Legg to get a greater revenue share again, Sullivan said.
Legg's conversations with other affiliates have been
centered on increasing management's equity compensation,
"We do think that is strategically the right thing to do for
the business," he said.
Legg Mason reported a net loss of $453.9 million, or $3.45
per share, for the third quarter ended Dec. 31, compared with
year-earlier net income of $28.1 million, or 20 cents.
(Reporting by Jessica Toonkel; Editing by Lisa Von Ahn and