BALTIMORE - Legg Mason Inc.'s institutional distribution and marketing platform paid off for its subsidiaries in 2001, with mutual fund assets increasing 36% last year.
Assets for the institutional fund group, called Legg Mason Institutional Funds, hit $5.3 billion as of March 31, up from $3.9 billion as of March 31, 2001 and $3.3 billion as of March 31, 2000. About $3 billion of the assets are in fixed-income funds, with the rest in equity.
Tom Hirschmann, managing director at Legg Mason Institutional Funds, said the growth in the last few years has been in the defined contribution area. But there also has been some interest from smaller defined benefit plans that want the expertise without meeting the high minimum investments of a separate account, he said.
The institutional fund family, which represents the best offerings among Legg Mason's affiliates, consists of nine fixed-income funds, all managed by Western Asset Management Co., Pasadena, Calif., and 10 equity funds, including four managed by portfolio manager Bill Miller's group at Legg Mason Funds Management Inc., Baltimore. In addition, there are three equity funds from Batterymarch Financial Management Inc., Boston - domestic small-cap, international and emerging market - two managed by Brandywine Asset Management Inc., Wilmington, Del., and one managed by Gray, Seifert & Co. Inc., New York.
"It made a lot of sense to put a group together to market specific funds from the different subsidiaries as a fund family," as opposed to having each of the affiliates do their own marketing, said Mr. Hirschmann. Legg Mason launched the institutional fund family in 1998 with $1.1 billion in assets and has seen steady growth over the years with 2001 being one of the best years.
Not for everybody
This kind of institutional platform doesn't work for everyone. Other holding companies - such as Affiliated Managers Group, Boston, and Old Mutual U.S. Holdings, Boston - don't employ such a structure, they let the affiliates market the funds to plan sponsors themselves. United Asset Management, which Old Mutual acquired in 2000, attempted to market a platform of its best-performing mutual funds to defined contribution plans in the mid-1990s, but the effort didn't work and was abandoned.
Christopher Acito, consultant with Casey Quirk & Acito LLC, Darien, Conn., said the challenge lies in walking the fine line between handling distribution and marketing and stepping on the autonomy of the affiliates.
Mr. Hirschmann said Legg Mason's chief concern in establishing its institutional mutual fund platform was adding value for the subsidiaries beyond revenue sharing, he said. He said the structure Legg Mason set up allows the affiliates to distribute their portfolios effectively without hampering their independence. "All the subsidiaries are very autonomous in the way they run their businesses and their investment processes," said Mr. Hirschmann.
Another important factor is getting the affiliates to buy into the system, some consultants said.
Past models, such as UAM's, suffered because there were too many affiliates vying for attention, said Geoff Bobroff, president of Bobroff Consulting, East Greenwich, R.I. If there are several good funds within a particular asset class, the holding company has to select one or two to market at the risk of alienating the managers whose funds were not selected as part of the platform, Mr. Bobroff said.
Mr. Hirschmann agreed. "What they have at risk is their name," he said. "Western Asset Management has spent 30 years building up a reputation that I certainly don't want to be responsible for having a negative impact on."
Legg Mason doesn't plan to expand its institutional platform to separate accounts because it doesn't want to impinge on the relationships the affiliates have with their separate account clients, Mr. Hirschmann said. "That's too big a part of their business," he said. "They're going to want to maintain that ownership."