--Will acquire BNP Paribas' Fauchier for undisclosed amount
--Deal is latest in consolidating fund-of-hedge-funds
industry
--Comes as money manager says it will take up to $750 million
writedown this quarter
(Adds executive comments in nineth and 10th paragraphs, details
throughout.)
By Mia Lamar
Legg Mason Inc. (LM) agreed to acquire BNP Paribas SA's (BNPQY,
BNP.FR) Fauchier Partners, the latest deal in the fast-shrinking
fund-of-hedge-funds industry.
The Baltimore money manager plans to combine Fauchier with its
affiliate Permal Group, another large fund-of-hedge-funds firm
whose purchase in 2005 marked Legg Mason's first foray into
alternative investing.
Fauchier will bring roughly $6 billion in client assets to
Permal, which has been hit with outflows of investor cash like many
of its peers. Permal had $18.3 billion in assets under management
through March, the end of Legg's latest fiscal year.
Legg Mason also Thursday said it would take a non-cash writedown
of up to $750 million this quarter, tied in part to a resetting of
expectations for Permal.
"What we've learned is that scale is important to investors in
this space," said Mary Athridge, a spokeswoman for Legg Mason.
"This deal gives that to them."
Fund-of-hedge-funds--which invest in other firms' hedge
funds--have recorded a substantial decline in assets since the
financial crisis, when many were hit by poor performance. In the
third quarter alone, such funds shed $4.4 billion, the sixth
straight quarter of outflows, according to Chicago-based Hedge Fund
Research. By comparison, the industry as a whole added $80
billion.
Another data provider, eVestment, said fund-of-hedge-funds
assets as a percent of overall hedge-fund assets fell to a record
low 34% at the end of September, as investors have grown
increasingly comfortable with allocating directly to hedge
funds.
Now, the $630 billion industry is undergoing a swift
consolidation. KKR & Co. LP (KKR) in June agreed to pay an
undisclosed amount for Prisma Capital Partners LP--founded by a
group of former Goldman Sachs Group Inc. (GS) partners--while
fellow money manager Franklin Resources Inc. (BEN) this fall picked
up a majority stake in fund-of-hedge-funds firm K2 Advisors.
In an interview with Dow Jones Newswires, Permal Chief Executive
Isaac Souede said the company began evaluating an acquisition of
Fauchier this summer. Legg Mason and Permal declined to provide
terms of the deal, but Mr. Souede said the sale was undertaken
through an auction process that saw it emerge as the highest
bidder.
"We've looked at many things over the past few years but nothing
that had a talent pool and the institutional process that this firm
has," Mr. Souede said.
BNP Paribas also declined to give details of the
transaction.
Macrae Sykes, an analyst at Gabelli & Co., called the
Fauchier acquisition a "small positive" for Legg Mason, noting it
will give a boost to fee rates but is a small addition relative to
Legg's roughly $650 billion in client assets.
The money manager has struggled for years with poor fund
performance and customer redemptions, hurting profits and angering
investors. Former Chief Executive Mark Fetting stepped down Oct. 1
after the company yielded to calls for a turnaround from activist
hedge fund Trian Fund Management LP, Legg Mason's second-largest
shareholder.
Separately Thursday, Legg Mason said it will move its quarterly
dividend payment of 11 cents a share to Dec. 28, joining a slew of
companies that have been moving up such payments to help their
shareholders get ahead of potential tax increases next year.
--Saabira Chaudhuri and Amy Or in New York and Noemie Bisserbe
in Paris contributed to this article.
Write to Mia Lamar at mia.lamar@dowjones.com
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