The acquisition announcements were made shortly ahead of the release of Legg Mason’s fiscal third quarter 2016 financial results, which reflected the challenging market conditions the company is facing.
Operating loss
Joseph A. Sullivan, chairman and chief executive of Legg Mason, said: “Our operating results for the quarter [a loss of $240.7m (£169.8m, €221.3m)] reflected a challenging period for asset management firms.”
Legg Mason’s revenue decreased by 2% to $659.6m compared with a year ago; while operating expenses increased by 66% to $900.2m, as a result of an impairment charge linked to a drop in assets under management at its existing hedge fund platform Permal, following a shift to more institutional investors.
Net loss for the year was $138.6m, compared with net income of $64.3m in the fiscal third quarter 2015.
“Our operating results for the quarter [a loss of $240.7m (£169.8m, €221.3m)] reflected a challenging period for asset management firms.”
Sullivan said: “In the quarter, we continued to work to commercialise new equity investment capabilities, launched four outcome-oriented ETFs in the US, closed our acquisition of RARE Infrastructure, and added their funds to our European fund ranges.
“Consequently, we have taken important steps to execute upon our strategy of becoming an increasingly diversified asset management firm in terms of investment expertise, products, vehicles, and distribution channels to service evolving and diverse client needs.”
Hedge fund
Legg Mason has entered into a definitive agreement to combine Permal with EnTrust Capital; an independent hedge fund investor and alternative asset manager headquartered in New York. EnTrust has approximately $12bn in total assets.
Legg Mason will own 65% of the new entity, to be rebranded EnTrustPermal; with 35% being owned by Gregg Hymowitz, EnTrust’s co-founder and managing partner, who will lead EnTrustPermal as chairman and chief executive.
The combined businesses will create a new global alternatives firm with over $26bn in pro-forma AUM and total assets of $29bn.
The firm will have a diverse offering of proprietary investment products with a significant number of institutional and high net worth investors.
ETF
A late entrant to the ETF market, having only recently entered the sector with the launch four ETFs at the end of December, Legg Mason has acquired a minority equity position in Precidian Investments, a firm specialising in creating products and solutions and solving market structure issues, particularly with regard to the ETF marketplace.
Precidian leverages its intellectual property to power its own ETF products, which are sub-advised by unaffiliated managers; and to work with financial services firms to jointly develop solutions, structures, and products.
Under the terms of the agreement, Legg Mason purchased a new class of preferred equity, entitling Legg Mason to the rights of a holder of 19.9% of common equity, with the option to acquire a majority interest in future.
Real estate
Legg Mason has also agreed to acquire a majority equity interest in Clarion Partners, a diversified real estate investment firm based in New York. The acquisition significantly expands Legg Mason’s offering across the alternative asset management capabilities, adding differentiated real estate capabilities.
Clarion manages approximately $40bn across the real estate risk/return spectrum. It will operate as the primary independent real estate investment affiliate for Legg Mason.
Legg Mason will acquire an 83% stake in Clarion for $585m. The management team of Clarion will retain 17% of the outstanding equity.
The firm’s previous majority partner, Lightyear Capital, will sell its entire ownership stake in the transaction. The deal is expected to close in the second quarter of 2016.
Looking forward
“With the acquisition of Clarion Partners, we have added a private real estate capability with strong performance through market cycles, differentiated and diverse product offerings and broad growth opportunities in new geographies and products,” Sullivan said.
“By bringing EnTrust together with Permal we create one of the largest alternative asset managers with complementary investment capabilities, global client relationships and business mix. Our investment in Precidian Investments gives us access to a proven innovator that will help us continue to drive product and vehicle diversification.”
As of 31 December 2015, Legg Mason had $671.5bn in assets under management.
