Legg Mason's CEO Discusses Q4 2012 Results - Earnings Call Transcript

Legg Mason (LM)

Q4 2012 Earnings Call

May 01, 2012 8:30 am ET

Executives

Alan F. Magleby - Director of Investor Relations & Communications

Mark Raymond Fetting - Chairman, Chief Executive Officer, President and Member of Finance Committee

Peter H. Nachtwey - Chief Financial Officer, Principal Accounting Officer and Senior Executive Vice President

Analysts

Michael Kim

Michael Carrier - Deutsche Bank AG, Research Division

Cynthia Mayer - BofA Merrill Lynch, Research Division

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

William R. Katz - Citigroup Inc, Research Division

Matthew Kelley - Morgan Stanley, Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division

Roger A. Freeman - Barclays Capital, Research Division

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Presentation

Operator

Greetings, and welcome to Legg Mason Fiscal Fourth Quarter and Year-End 2012 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alan Magleby, Head of Investor Relations and Corporate Communications. Thank you. Mr. Magleby, you may begin.

Alan F. Magleby

Thank you. On behalf of Legg Mason, I would like to welcome you to our conference call to discuss operating results for the fiscal 2012 fourth quarter and the fiscal year ended March 31, 2012.

This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not statements of facts or guarantees of future performance and are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those discussed in the statements. For a discussion of these risks and uncertainties, please see risk factors and Management's Discussion and Analysis of financial condition and results of operations in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2011, and in the company's quarterly reports on Form 10-Q.

This morning's call will include remarks from the following speakers: Mr. Mark Fetting, Chairman and CEO and Mr. Pete Nachtwey, Legg Mason CFO, who will discuss our financial results. In addition, following the review of the company's quarter, we will then open the call to Q&A. Now I would like to turn this call over to Mr. Mark Fetting. Mark?

Mark Raymond Fetting

Thank you, Alan. And I would like to welcome everyone to the Legg Mason fiscal fourth quarter and year-end 2012 earnings call. Over the last fiscal year, we completed our streamlining initiatives and our full focus now is on growing our franchise. We believe that we have positioned the firm well across a number of categories to deliver investment solutions to our clients even with the near-term headwind of choppy markets.

Organic growth opportunities include strong positions in fixed income. With investment teams on the ground in most major investment centers, Western Asset can offer virtually any fixed-income solution in almost any currency. And Brandywine Global has strong traction in its global bond capability. Permal's macro strategies have significant appeal for investors in these markets, and we are working with them on opportunistic funds to capitalize on market volatility. Going forward, Permal see significant opportunity in China, sovereign wealth funds, U.S. and non-U.S. institutions and high net worth investors in the U.S. On the equity side, we continue to see opportunity in specific categories such as ClearBridge's income solutions products and MLP offerings as well as opportunities to expand Royce's presence with investors outside the U.S. We also actively looking at bolt-on and lift-out acquisitions to fill in product gaps. As markets around the world continue to work through structural issues, we recognize that it may take time for investor sentiment to get in line with the investment opportunities our managers see. But we believe we are well-positioned for the long term. And in the short term, we're well diversified and situated to withstand continued global financial challenges.

Let's start with Slide 3 and discuss our progress across the strategic goals we laid out last year.

As I've said many times, our success starts with our investment managers. As we'll discuss in more detail later in the presentation, performance remains strong in our team managers with 80% of marketed composite assets beating benchmarks for the critical 3-year period. Managers continue to win recognition from third parties for performance in a variety of categories. We will go into more detail in the next slide. In the institutional space, our affiliates continue to see demand in specialized areas such as, as investors search for returns. Western has branched out into the active ETF space to a sub-advisory arrangement. And in addition, Legg Mason has an application pending with the SEC to start our offerings in that segment.

We have launched a 1099 fund of hedge funds to target U.S. high net worth individuals with Permal, that we expect to gain traction later in the year. ClearBridge sees additional opportunities for MLP investment vehicles as that market expands particularly with institutions seeking yield.

At Legg Mason, we are focused on a corporate center that delivers strategic value. We've shifted resources in global distribution, providing more feet on the street and geographic reach. And we are working with our affiliates to launch new products where we see demand including 2 closed-end funds launched over the past year. And finally, we are allocating capital to benefit shareholders and strengthen our balanced portfolio. With our strong cash position, we repurchased 13.6 million shares in fiscal '12 and increase our quarterly dividend by 38% to $0.11 a share. Our SIV investment portfolio stands at nearly $400 million and represents $27 billion in assets today. And at the same time, we are more actively looking at targeted acquisitions to fill product gaps that will help to improve our asset mix inflows.

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