<!-- Swiftype Variables -->

Money Management

Legg Mason AUM slips 3.7% for quarter, 5.2% over year

Firm announces cost-cutting measures

Legg Mason (LM) reported $727.2 billion in assets under management as of Dec. 31, down 3.7% from the end of the previous quarter and down 5.2% from a year prior.

Senior executives also announced in a Monday evening earnings call two cost-savings efforts planned for the company — one includes plans to downsize staff at one of Legg Mason's nine affiliates, and a separate move to roll out a global operating platform that could cut costs by centralizing certain corporate services for its multiaffiliate model.

During the three months ended Dec. 31, reported as Legg Mason's fiscal third quarter, the company had long-term net outflows of $8.5 billion, compared with $1 billion in long-term net outflows in the previous quarter and net inflows of $2.2 billion for the quarter ended Dec. 31, 2017.

Of note, a Legg Mason affiliate implemented a downsizing plan and that will have an effect on clients in the current quarter, CFO Peter H. Nachtwey said in the earnings call.

Mr. Natchtwey did not identify the affiliate. Legg Mason has nine affiliates: Brandywine Global Investment Management, Clarion Partners, ClearBridge Investments, EnTrustPermal Securities, Martin Currie Investment Management, QS Investors, RARE Infrastructure; Royce & Associates and Western Asset Management.

On Monday, a spokeswoman also declined to say which affiliate would implement the plan or how many job cuts would result from the move — but clarified the cuts would occur next quarter.

Under a separate cost savings effort, Legg Mason also will launch a global operating platform across its multiple affiliates, Chairman and CEO Joseph A. Sullivan, said during the earnings call. That measure is expected to result in $90 million to $110 million of annual expense savings.

The firm did not project a specific number of staff expected to be affected by the effort in the earnings call, but a spokeswoman provided an emailed statement Monday evening on the matter:

"Designing the global operating platform will require us to make challenging decisions about staffing as we bring together practices, resources, expertise and talent from across the company. We appreciate the efforts, commitment and dedication of all of our colleagues as we continue this work. We are not in a position to estimate the size or scale of any future reductions-in-force at this point. Over time, our goal is to provide employment opportunities in new and growing areas to better serve our clients."

During the earnings call, Mr. Sullivan emphasized "today's announcement is not driven by short-term market conditions," and later explained the global operating platform was part of a longer-term company plan that will focus on further enhancing the client experience.

The global operating platform is still in the design phase, a spokeswoman later confirmed.

"We are developing a new global operating platform to markedly enhance the efficiency and effectiveness of our multiaffiliate model, while still protecting the independent investment management that makes us special," said an internal company memo written Monday by Mr. Sullivan, which was obtained by Pensions & Investments.

Jennifer Murphy, Western Asset's chief operating officer, will lead the initiative. The new operating platform will involve business functions that include: operations, technology, fund administration, legal and compliance, human resources, finance, real estate, enterprise risk and other corporate services, according to the memo.

"All of this and more can make us more nimble, more efficient, more effective and more responsive to clients, if we scale them across all of our businesses," Mr. Sullivan wrote in the memo. "While industry disruption may be a catalyst, it is our focus on serving clients that drives us to operate differently — to streamline the processes that make sense, while maintaining the independence that our clients value most."

In its Monday earnings statement, Legg Mason separately reported that its equity strategies had net outflows of $3.3 billion, compared to net outflows of $1.1 billion in the previous quarter and net outflows of $3.2 billion during the three months ended Dec. 31, 2017.

Fixed-income strategies had net outflows of $5.1 billion, vs. net outflows of $500 million and net inflows of $5.4 billion from the quarter ended a year earlier.

Alternative strategies had net outflows of $100 million for the most recent quarter. In comparison, net inflows to alternative strategies were $600 million during the previous quarter, while those strategies saw no net flows for the three months ended Dec. 31, 2017.

Liquidity vehicles saw net inflows of $10.5 billion during the most recent quarter, vs. net inflows of $3 billion for the quarter ended Sept. 30 and net outflows of $2.3 billion for the year-prior quarter.

As of Dec. 31, assets in equity strategies were $181 billion, down 15.6% from the end of the previous quarter and down 12.8% from Dec. 31, 2017.

Fixed-income assets totaled $406.6 billion, down 1.1% from the end of the previous quarter, and a 3.2% from a year earlier.

Meanwhile, AUM in alternative strategies was $66.3 billion, representing a 1.6% drop from Sept. 30 and remaining flat from Dec. 31, 2017. Liquidity assets totaled $73.3 billion, a 17.3% increase from the end of the previous quarter and a slight increase of .14% from the year prior.

Legg Mason's revenue for its third fiscal quarter was $704.3 million, down 7.1% from the end of the previous quarter and down 11.2% from the quarter ended Dec. 31, 2017.

The firm reported a net income loss of $216.9 million in the three months ended Dec. 31, compared to net income of $72.8 million for the quarter ended Sept. 30 and net income of $149.2 million for the three months ended Dec. 31, 2017.