Baltimore-based Legg Mason Inc. ( LM ) reported a rise in its assets under management (AUM) as of Oct 31, 2014, as compared with the prior month, on Thursday. Preliminary month-end AUM came in at $719.5 billion, up 1.7% from the prior month. However, the release had a minimal impact on the share price.
The increase over the prior month mainly resulted from fixed income and equity inflows of $5.1 billion and $1.2 billion, respectively. The rise in fixed income was driven by the surprise departure of bond star Bill Gross from Pacific Investment Management Co. (Pimco) in September. Rival money mangers including Brandywine Global and Western Asset Management units of Legg Mason, seem to have benefited from Gross' exit, which impelled investors to withdraw money from Pimco and reallocate their money.
However, liquidity outflows stood at around $9.5 billion. The reported month included a negative foreign exchange impact of about $1.1 billion and included AUM of around $9.5 billion related to the acquisition of Martin Currie, which closed on Oct 1, 2014.
Legg Mason's equity AUM as of October end increased 6.8% over the prior month to $206.7 billion. Moreover, fixed income AUM climbed 2.2% from the prior month to $368.5 billion.
The rise in fixed income as well as equity AUM resulted in higher long-term AUM of $575.2 billion, which marked an increase of 3.8% from the prior month. However, liquid assets, which are convertible into cash, fell 6.2% to $144.3 billion.
Among other investment managers, Invesco Ltd. ( IVZ ) reported a marginal increase in the preliminary month-end AUM for Oct 2014. The AUM for the month came in at $790.3 billion, up 0.1% from the prior month.
Franklin Resources Inc. ( BEN ) preliminary AUM of $898.4 billion for Oct 2014 exhibited a slight increase from $898.0 billion as of Sep 30, 2014.
We believe Legg Mason has the potential to outperform its peers in the long run, given its diversified product mix and leverage to the changing market demography. Moreover, a significant rebound in equity markets in the coming quarters would be a catalyst.
However, foreign exchange fluctuations remain a significant headwind. Nevertheless, owing to the company's restructuring initiatives and aggressive cost cuts, we expect operating efficiencies to improve and dividend payments to keep up investors' confidence in the stock.
Currently, Legg Mason carries a Zacks Rank #3 (Hold). Monroe Capital Corp. ( MRCC ) is a better-ranked asset manager with a Zacks Rank #1 (Strong Buy).
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