Legg Mason Inc. has named Joseph A. Sullivan chief executive officer, ending a five-month search for a leader to reverse five years of client redemptions and calm restive fund affiliates.
Legg announced the hiring on Wednesday, although reports of the appointment started circulating Tuesday evening. Sullivan, 55, who served as interim-CEO since Oct., replaces Mark Fetting, who stepped down amid pressure from activist investor and board member Nelson Peltz to improve the company's performance.
In picking Sullivan, Legg Mason turned down an opportunity to reach outside its ranks, which may reduce the chances of dramatic changes to the firm's strategy. Raymond A. “Chip” Mason, who in 1970 merged his company with a regional brokerage to form Legg Mason, led the firm until 2008. He was succeeded by Fetting, who had previously headed the mutual fund and managed-accounts businesses.
“I wouldn't expect to see any sort of major structural changes to the model, a meaningful shift in strategic direction of the firm or any flow improvement in the near-term,” Michael Kim, an analyst with Sandler O'Neill & Partners LP in New York, said in a telephone interview before Sullivan was said to be named CEO. “From a stock perspective, it could come as somewhat of a disappointment.”
Sullivan worked at Legg Mason Wood Walker for 12 years before rejoining the firm in 2008 as chief administrative officer and eventually head of global distribution. From 2005 to 2008, he worked at Stifel Nicolaus & Co. as head of fixed-income capital markets, after it bought Legg Mason's capital markets business.
Legg Mason this month reported a loss of $453.9 million, or $3.45 a share, for the three months ended Dec. 31, the biggest quarterly shortfall since it posted a $1.5 billion loss at the end of 2008. Earnings were hurt as redemptions and declining assets forced the company to write down assets tied to the 2005 takeover of Citigroup Inc.'s asset-management business and to the firm's Permal hedge-fund unit.
The firm, whose assets swelled to a peak of $1 trillion in 2007 as investors flocked to funds managed by top-ranked managers such as Bill Miller, slumped to $654 billion at the end of January as performance declined and investors pulled money. Since the fourth quarter of 2007, the firm has had withdrawals in 20 of the last 21 quarters, most recently suffering redemptions of $7.5 billion in the quarter ended Dec. 31.
The stock has fallen about 80 percent since hitting a high of $136.40 in February 2006.
Sullivan faces a push for greater independence by some of Legg Mason's eight investment affiliates. Sullivan has indicated he's more open to working with the units, which include bond manager Western Asset Management Co. and equity managers such as ClearBridge Investments and Royce & Associates. Each of Legg Mason's affiliates operate independently and have separate revenue-sharing agreements.
During the quarter ended Dec. 31, Legg Mason completed restructuring agreements with its hedge-fund unit Permal, which include a management equity plan, a revised revenue-sharing agreement and new multi-year employment contracts with key employees.
Western Asset, the bond manager that is Legg Mason's biggest investment unit, is seeking more control of its fund sales by trying to negotiate a move away from the centralized distribution model in which sales of retail products go through Legg Mason, a person familiar with the matter said in November.
In May, Western said it was removing the Legg Mason name from its U.S. mutual funds as part of a rebranding to increase sales to individual investors. ClearBridge, which is Legg Mason's largest stock-fund affiliate, said in October it was dropping the Legg Mason name from its mutual funds as part of a push to make its brand better known. In January, Legg Mason said it was folding Miller's Legg Mason Capital Management division into ClearBridge as assets tumbled.