Legg Mason breaks streak, finally ends net outflows

Legg Mason breaks streak, finally ends net outflows
Money manager stanches bleeding over last 20 quarters; profits up as well in Q2
FEB 11, 2013
Legg Mason Inc.'s streak of 20 consecutive quarters of net outflows is finally over — thanks to risk-averse investors. Legg Mason's money market funds had $9.7 billion of inflows during the third quarter (the company's fiscal second quarter), which just outpaced the $9.5 billion in outflows from its equity and fixed-income mutual funds. It was the first time the company's inflows have exceeded outflows since 2007. The hemorrhaging over the past five years led to Mark Fetting's stepping down as chief executive this past September. Legg Mason is still searching for a new CEO. The new boss will have to decide whether to continue the firm's affiliate model. Legg Mason is the parent company to Legg Mason Capital Management, Western Asset Management Co., Royce & Associates LLC and ClearBridge Advisors LLC. Spinning off one or more of the affiliates is a possibility, according to analysts. But the company is committed to the affiliate model, interim CEO Joseph Sullivan said during a webcast announcing the company's latest earnings report Friday. Activist shareholder Nelson Peltz — and not Mr. Sullivan — likely will have the biggest say in the direction the company takes. Mr. Peltz currently owns 10% of Legg Mason shares, a threshold he agreed not to exceed until mid-November. With that agreement nearing an end, all bets are off. Thus far, Mr. Peltz has been silent about his intentions. Last year, he did point to Western Asset, Legg's fixed-income arm, which accounts for 57% of the company's assets under management, as being the key to a turnaround. Western Asset stumbled during the financial crash, however, and has missed out on the three-year bond fund buying bonanza. Performance at the asset manager has turned around, though. Its Core Bond Fund Ticker:(WATFX) ranks in the top 10% of all intermediate-term-bond funds over the past three years, according to Morningstar Inc. Flows haven't yet responded. During the past quarter, investors withdrew $3.8 billion in fixed-income assets, according to the company.

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