Legg Mason says Permal deal may be model for other units

Fri Feb 1, 2013 3:21pm GMT

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(Reuters) - Legg Mason Inc sees a new revenue-sharing agreement with its Permal affiliate as a "good framework" for similar deals with other units, interim Chief Executive Joseph Sullivan said on Friday.

The Baltimore-based fund company, which has $648.9 billion in assets under management, is in talks with other affiliates about altering their revenue sharing plans to include a bigger equity component, Sullivan said on a conference call after it reported quarterly earnings.

Reworking revenue sharing to provide more equity to affiliate employees should help with recruiting and keeping key employees, Sullivan said on the call.

"It helps them to think longer term," he said.

Legg may also use the model for future acquisitions, Sullivan said.

Legg has been built over the years through a patchwork of deals, resulting in eight main independent asset management units, each with separate revenue-sharing agreements.

A pending merger between its equity-focused ClearBridge Investments and Legg Mason Capital Management units will soon reduce the total to seven.

Tensions have emerged, with some affiliates saying they should get help from the parent company with selling and marketing their funds, given how much revenues they turn over, sources have told Reuters.

In December, Legg Mason said it was acquiring Fauchier Partners, a fund-of-hedge-funds firm with $6 billion in assets, from BNP Paribas Investment Partners, and merging it with Permal, a $17 billion fund-of-funds firm.

As part of the deal, Legg said it had revised employment and revenue-sharing agreements with Permal. Sullivan said that could be a model for additional changes aimed at other affiliated investment units.

The main reason Legg reworked the revenue share with Permal first was because it was too high since it was set in 2005, when markets were much stronger, Sullivan said on the call.

"We have been supporting them for the last few years and effectively had a lower revenue share as a result of it," Sullivan said.

However, when business returns, the agreement allows for Permal to get an greater revenue share again, Sullivan said.

Legg's conversations with other affiliates have been centered on increasing management's equity compensation, Sullivan said.

"We do think that is strategically the right thing to do for the business," he said.

Legg Mason reported a net loss of $453.9 million, or $3.45 per share, for the third quarter ended December 31, compared with year-earlier net income of $28.1 million, or 20 cents.

(Reporting by Jessica Toonkel; Editing by Lisa Von Ahn and Jeffrey Benkoe)

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