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.
Multi-asset
The acquisition of QS Investors is Legg Mason’s first foray into the multi-asset space: the new affiliate is an outcome oriented multi-asset solutions provider, which has added $5bn (£3bn) in AUM and $101bn in assets under advisement (AUA), significantly boosting the firm’s advisory business.
“We think this customer preference for solutions and outcomes is an enduring trend and the US is a leader in that respect. The experts at QS are inundated with questions about these strategies,” Sullivan said.
The firm is well-known for bringing US strategies over to the UK and Europe, or making existing strategies more accessible to UK and European investors, as it strives to strengthen its footprint in the region.
We want to have fewer, but larger, affiliates that we can get behind and market
In 2012, the group added 17 offshore funds to the IMA sectors for the first time; last July it brought the Tactical Dividend Income fund run by ClearBridge to the UK market, and earlier that year added a sterling-hedged share class on its offshore Legg Mason Royce US Small Cap Opportunity fund, as UK clients showed interest in the vehicle.
Looking ahead, Sullivan said strategies offered by QS Investors are the most likely candidates for the next push into the UK market, as the RDR and recent changes to annuity rules have fuelled demand for multi-asset solutions.
“QS does have investment products, but a significant part of the business is customising products for clients,” Sullivan said.
“We could bring the products over, but more important is to see what clients can achieve and show them how we can customise strategies.
“[What we bring over to the UK] could be a combination of both: highly customised solutions for more sophisticated clients, but we could also create strategies for the larger distributors.”
The acquisition has seen the group fold Legg Mason Asset Allocation and Batterymarch Financial Management into QS Investors in an effort to operate with fewer, but larger, affiliates. QS has already seen its AUM increase from $4.1bn to $5.6bn in the four months since the acquisition completed, as Legg Mason’s distribution channels kick into action.
“This growth in assets is indicative of [multi-asset solutions] being a very hot area right now,” Sullivan said. “We think it is going to continue. We want to create products that provide access to many asset classes.”
QS may also allow Legg Mason to venture into what Sullivan called “quasi-passive” strategies, such as smart beta.
However, he said there are no plans to break into the passive index space, as “there is already an oligopoly around that”.
Growing assets
Though further acquisitions remain on the cards, Sullivan said his key focus now is on growing the assets and product ranges of both the newly acquired businesses and the existing affiliates.
“It is all about growth,” the CEO said. “We have a number of different products in various stages of development with all of our affiliates. These are broadly unconstrained and absolute return strategies, rather than benchmark-relative products.”
Europe remains a key area for expansion, with London remaining the European hub, but the US house is also keen on expanding its distribution in other areas like Australia.
Martin Currie is expected to help with both: Legg Mason plans to rebrand a small existing independent affiliate in Australia under the Martin Currie name to create a larger business in that region.
“Our European business has been on fire, while we have already been very successful with fixed income and US equity products,” the CEO said.
“We want to have fewer, but larger, affiliates that we can get behind and market.”
The latest quarterly results have already revealed growth across all parameters: income, operating revenues, and assets under management were all up in the second quarter of 2014 compared to Q1, with AUM now standing at $704.3bn, up 9% from a year ago.
Sullivan said: “We are very pleased with the improvement we have had in global distribution and the progress all our affiliates are making. We are feeling good about what we have done and where we are.”
CV: Joe Sullivan
2013
President and chief executive officer of Legg Mason
2012
Appointed interim CEO
2008
Joined Legg Mason as head of global distribution and chief administrative officer
2005
Served on the board of directors of Stifel Financial and as executive vice president and head of fixed income capital markets for Stifel Nicolaus
