Legg Mason Inc. wants to make an acquisition to expand internationally, the Baltimore money manager's top executive said during its earnings call Tuesday.
"Our No. 1 priority is the purchase of an international asset manager," said chairman and chief executive Raymond A. "Chip" Mason, citing the repurchasing of stock as the company's second priority. "We are increasingly focused on growing the business."
He said Legg's equity flows were hampered in the fiscal first quarter, which ended June 30, by difficult market conditions and "underperformance by our key equity managers."
Domestic equity funds have lagged industrywide the past several quarters, and international funds have outperformed domestic by two or three times, the CEO said.
"We are solid in emerging markets, but international equity is a sector where Legg is under-represented," he said. "Lack of equity flows from international markets has been an area of focus for us, and improving performance is key to us generating more flows."
Mr. Mason said he is spending a "disproportionate" amount of time scouting international acquisition prospects.
"If I could've" made a deal, "we'd already have done something," he said. "The problem is, an acquisition comes when it comes. If you try to rush it, you'll end up making an acquisition that, later, you wish you didn't make."
Legg likes to consider acquisitions every two or three years, he said. "The deals we do now are just big, and for something to cost $2 billion or $3 billion, we will need cash flow."
For the first time since Legg swapped its broker-dealer operations with Citigroup Inc.'s asset management business in December 2005, its executives are not concentrating on integration and can pursue acquisitions, Mr. Mason said. "There has been a distinct change in the past several months in how we are spending our time," he said. "It feels much more like premerger, when we were focused on driving assets."
Led by the performance of its hedge fund business, Legg was able to withstand equity outflows and post strong results for the quarter. Net income rose 22%, to $191 million. Earnings per share of $1.32 beat analyst expectations by 8 cents, according to Thomson Financial Inc.
Revenue rose 16%, to $1.21 billion, as assets under management also rose 16%, to $992.4 billion from a year earlier and 2.55% from the previous quarter.
The company said clients added $2 billion of new assets during the quarter. The top performer was its hedge fund unit, Permal Group Inc. Mr. Mason said Permal, which has offices in New York and London, has doubled its assets under management, to $35 billion, since Legg acquired it 20 months ago.
Though clients are adding assets at Permal, outflows have continued from Legg's equity funds. The company had net client cash inflows of $2 billion; the $8 billion of fixed-income inflows and $1 billion of cash inflows were offset by $7 billion of outflows from equity products.
As it looks for acquisitions, Legg is also searching for Mr. Mason's successor. In April it announced heir apparent James W. Hirschmann 3rd was stepping down as president and chief operating officer and Mr. Mason, 70, would lead the company for at least two more years. Mr. Mason said a four-person committee was selected to find his successor.
