Although Martin Currie Ltd. has been struggling with underperforming strategies and plummeting assets, Legg Mason Inc. executives saw the Edinburgh-based boutique as the ideal firm to help expand Legg Mason's active non-U.S. equity capabilities.
“All managers go through periods where they're underperforming. That's just the nature of the business,” Legg Mason CEO Joseph Sullivan said in a telephone interview. “So we looked at how they retooled their business. We find Martin Currie to be a high-quality, well-led firm that's worked its way through challenges through the crisis.”
He added that Martin Currie executives have spent the past four years restructuring the business.
Martin Currie was fined nearly $14 million in 2012 by the Securities and Exchange Commission and the U.K.'s Financial Services Authority in a settlement involving use one of its investment funds to rescue its China-focused hedge fund, which led to a loss in assets and investor confidence. Plus, several of its strategies have been consistently underperforming.
As a result, assets under management plummeted 61% to $7.72 billion at Dec. 31, 2012, from a post-crisis peak of $19.9 billion on Dec. 31, 2009.
Since that low, assets have begun to climb again, reaching $9.8 billion as of June 30. The firm also experienced net inflows of $760 million in 2013 and $480 million for the first half of 2014.
Legg Mason knew about regulators' investigation of the Martin Currie China Hedge Fund and “vetted it thoroughly,” said Mr. Sullivan. He added Legg Mason's executives admired that Martin Currie officials reported the issue to regulators, took steps to strengthen its compliance and operations and compensated all clients in the impacted fund.
Mr. Sullivan said he also was impressed that Martin Currie acted decisively to fix its falling AUM by hiring John Pickard in 2010 as head of investments. “We think John Pickard has done an excellent job, and that they have today a very clear, understandable and repeatable investment process,” he said.
Martin Currie has also recruited 12 portfolio managers and 11 investment analysts to its investment team over the past four years, said Martin Currie CEO Willie Watt.
Martin Currie's executive team has been working to fix its problems and reverse its fortunes, said Messrs. Sullivan and Watt.
“They've got strong risk controls embedded in their investment process now and strong people. They've been growing. They've been gaining business,” Mr. Sullivan said.
Terms of the deal weren't disclosed, but some sources speculated Martin Currie's woes might have allowed Legg Mason to buy the firm at a discount.
Legg Mason began looking in earnest about two years ago to either add or build a non-U.S. brand, said Mr. Sullivan. Although affiliates ClearBridge Investments, Brandywine Global Investment Management LLC and Royce & Associates LLC have non-U.S. equity strategies, none has a sizable presence as an international manager.