On Thursday, Baltimore-based
Legg Mason, Inc.
) and its affiliate, Permal Group, announced the acquisition of
London-based fund-of-hedge-funds firm - Fauchier Partners from
BNP Paribas Investment Partners, an asset management unit of
BNP Paribas SA
). Financial terms of the deal were not disclosed.
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At the close of the transaction, which is expected in the first
quarter of 2013, Fauchier Partners, with assets under management
(AUM) worth $6 billion will be integrated into global alternative
asset manager - Permal and will jointly create a combined entity
with about $24 billion in AUM. The entity will operate through 9
offices and a global investment team based in New York, London,
Paris and Singapore.
Moreover, the acquisition is anticipated to be accretive to Legg
Mason's earnings in the first year, reflecting management's
continuing assurance to create shareholder value.
Generally, fund-of-hedge-funds firms invest in the hedge funds of
other firms in addition to personal direct investments in
securities. The aforesaid agreement sets another example of the
fund-of-funds market consolidation led by decline in margins and
augmented withdrawals attributable to credit crisis.
During 2012, similar acquisitions include
Franklin Resources Inc.
) purchase of a majority stake in K2 Advisors, buyout of Prisma
Capital Partners by private-equity group,
Kohlberg Kravis Roberts & Co.
Man Strategic Holdings plc
) acquisition of FRM Holdings Limited.
Direct investments by investors into hedge funds have led to
shrinkage in hedge fund assets of fund-of-hedge-funds firms.
Therefore, these firms recorded sixth consecutive quarter of
outflows in the third quarter of 2012, summing upto $4.4 billion
compared with significant inflows of $80 billion in the industry
in the prior periods.
After-effects of the Deal
Concurrent with the announcement of Permal's purchase of Fauchier
Partners, Legg Mason announced the revision in its employment and
other arrangements with the management of Permal. The company
will record non-cash impairment charges in the range of $650
million to $750 million ($460 million to $550 million after net
tax benefits) for impairment of two noteworthy indefinite-life
fund management contract intangible assets in the current
Having strengthened its foothold over the years in global macro
and fixed income credit, Permal commands a strong presence in the
US. On the other hand, Fauchier is superior in equity long-short
and event-driven and has a strong business in UK. Therefore, with
the acquisition of Fauchier, Permal will expand globally with the
help of the acquired firm's asset management brand and
Moreover, the acquisition demonstrates Legg Mason's aim of
providing exceptional services to its clients with the purchase
of such a flourishing asset management firm. The completion of
the deal will significantly expand Permal's institutional
On the other hand, the deal widens Fauchier's scope and will help
its expansion efforts with the commitment of providing best
investment decisions to its clients. Overall, the clients of
Fauchier will have access to the industry's largest managed
account platforms provided by Permal, while the company will take
advantage of Fauchier's investment management potencies.
Therefore, the combined entity will be beneficial for clients of
both firms aided by enhanced investment talent and resources.
The acquisitions of such asset management companies are welcome
as they play a major role in preserving investor confidence in
We also believe that Legg Mason's diverse revenue stream and
sturdy capital position augur well for investors. Capital
deployment efforts also bode well and boost investors'
confidence. Yet, the unsettled economic environment, low interest
rate and stringent regulatory issues are matters of concern.
Legg Mason currently retains its Zacks #3 Rank, which translates
into a short-term Hold rating. We believe the announcement of
such acquisitions will be beneficial for leading upward earnings
estimate revisions. This, in turn, could cause an upgrade in the