Legg Mason Inc.'s new chief executive, Joseph Sullivan, is making the bold prediction that the firm is uniquely poised to attract assets in a rising-interest-rate environment.
“We don't have the classic U.S. Treasury-rate-type products, and we think that as people are looking for greater yield and performance, our active management will benefit us, and we ought to be able to capture some assets” amid rising rates, he said today.
The comment reflects surprising confidence in a firm that has seen its total assets under management drop by 35% since 2008, to $654 billion, from $1 trillion.
As a firm with nearly 80% of its assets allocated to fixed-income investments, Legg Mason has stood out over the past few years as one of the few bond managers not being flooded with inflows.
“We've just gone through a cycle where all you needed was to hang a fixed-income shingle on your door and you saw money flow in, and yet Legg Mason lost money during that period,” said Gregory Warren, an analyst at Morningstar Inc.
“That's why I worry about Legg Mason, long-term,” he said. “Obviously, there is a reckoning coming in fixed income, and the question is, will Legg be hurt on the other side of this as well?”
In one of his first interviews following Wednesday morning's announcement that he had been promoted from interim chief executive to president, CEO and director of the asset management firm, Mr. Sullivan said that strategies already have been introduced to help position the company for better times.
“In the past few years, we had institutional strategies, but we didn't have as much in the way of products to capture some of the fixed-income inflows,” he said. “We've resolved that by adding some new share classes, and that goes hand in hand with some of our branding work that involves leading with our affiliate brands, where we did not previously have the retail asset classes branded.”
Mr. Sullivan, 55, has been the interim CEO since October, when former CEO Mark Fetting resigned from the position that he had held since 2008.
The firm also said that asset management industry veteran Dennis Kass will join Legg Mason's board in April.
Legg Mason operates under a decentralized business model, providing a lot of autonomy to its eight affiliated asset managers. That model has been criticized by some analysts for making it more difficult to build solid brands, as well as market and distribute the various products.
But Mr. Sullivan, who has spent the past few months reaching out to affiliates in an effort to introduce a more cohesive operation, said that he has no plans to upend the affiliate business model.
“We're absolutely committed to our affiliate model and the autonomy of our affiliates, but there are areas where we can work together,” he said. “The difference will be a much more aggressive collaboration with our affiliates, because when we work closely with our affiliates, we win.”
Mr. Sullivan cited as among his immediate objectives a three-pronged strategy that involves developing products in the areas where assets are heading, better investment performance, and “we've got to make sure we're distributing those products and strategies in the most effective way possible.”
Meanwhile, the jury is still out on how well he will work alongside activist shareholder Nelson Peltz.
The founding partner of Trian Fund Management LP owns 9.5% of Legg Mason stock and has been a board member since 2009.
Mr. Peltz, who is known for speaking his mind, often through detailed white papers, operated until November under a two-year standstill provision that limited his activities with regard to Legg Mason.
He didn't respond to request for comment, but Legg Mason executives said that he fully supports the permanent hiring of Mr. Sullivan as CEO.
“Nelson Peltz is a significant investor, and he is also a director, and I think he is 100% on board with the new CEO,” said W. Allen Reed, Legg Mason's nonexecutive board chairman.
Trian said in a statement that it is “enthusiastic about the appointment of Joe Sullivan,” and that it thinks that Mr. Sullivan will be able to “unlock Legg Mason's potential.”