The Wall Street Journal-20080129-Legg Mason Names Fetting CEO- President- Choosing the Successor To Co-Founder Mason Was Long- Tough Process
Return to: The_Wall_Street_Journal-20080129
Legg Mason Names Fetting CEO, President; Choosing the Successor To Co-Founder Mason Was Long, Tough Process
Full Text (1072 words)Legg Mason Inc. announced that Mark Fetting will become its new chief executive and president, concluding one of the most important and closely watched succession races in recent mutual-fund history.
The move caps a long, tough search for a successor to Raymond "Chip" Mason, the 71-year-old co-founder of Legg Mason -- and the only CEO in the firm's 27-year history.
The $1 trillion Baltimore money-management firm has searched for a successor for years, and now desperately needs one that can turn the firm around.
Mr. Fetting, 53, is currently senior executive vice president at the firm. He became the leading choice among a host of high-profile candidates -- both inside and outside the firm -- in part as the turmoil plaguing Legg created more uncertainty about the future.
The board voted on the decision yesterday. Many challenges lie ahead for Mr. Fetting. In the past few years, Legg's stock price has steadily declined, thanks to weak performance at some of its funds and waning Wall Street confidence in the firm's execution of a big asset swap with Citigroup Inc. about two years ago.
Most recently, separate troubles have also arisen with some of the firm's money-market-type mutual funds, which invested in securities from structured investment vehicles that took a hit in recent months amid the turmoil in the debt markets.
Tomorrow, Legg Mason is expected to report third-quarter earnings.
Mr. Fetting, who heads the mutual-fund business at Legg, could potentially have a very short window to prove that he is the catalyst for the big improvement needed at the firm.
Speculation has swirled around Mr. Mason's succession plan for years. It took on new urgency last year when James Hirschmann, a veteran of the company's bond unit -- and widely considered a leading candidate for the top job -- resigned as Legg's president and instead decided to focus on running the bond unit, Western Asset Management.
In recent months, several prominent outsiders came up as potential choices. Among them: BlackRock Inc. co-founder Ralph Schlosstein, who left recently to start his own investment company, and former Fidelity Investments executive Robert Reynolds.
At least one senior fund-industry executive said he or she would be more interested in the job if Legg Mason went private, which would let it sort out its issues without the scrutiny of public stock investors, an option that remains unlikely for now.
Stepping into Mr. Mason's shoes will be a formidable task. Mr. Mason founded Mason & Co. in 1962, and has been the chairman and chief executive of Legg Mason Inc. since its formation in 1981. Mr. Mason will continue with the company as nonexecutive chairman. Recruiter Russell Reynolds Associates Inc. handled the hunt.
Legg has grown markedly over the years, and now has 15 subsidiaries, including Western, small-stock specialist Royce & Associates, and fast-growing Permal Group, a manager of funds invested in hedge funds. Mr. Mason's approach has generally been to let the firms' units operate fairly autonomously.
Topping Mr. Fetting's to-do list will likely be increasing the flow of investor money into Legg's funds and ensuring that star money managers -- like Bill Miller, who is famous for his 15-year streak of beating the Standard & Poor's 500-stock index -- stay with the firm after the change in power.
Legg saw $5.4 billion in net stock and bond outflows last year through November, according to Financial Research Corp. The firm was the only one among the 15 biggest mutual-fund groups with outflows in that period. Last quarter, the firm reported net client cash inflows of $0.3 billion, which Mr. Mason noted were "disappointing, to say the least."
Such challenges could continue for asset managers industrywide as the rocky stock market is already prompting investors to pull out of many funds. Making matters worse for Legg, Mr. Miller's $16 billion Legg Mason Value Trust -- one of the company's flagship mutual funds -- is already down 11.2% so far this year, trailing the Standard & Poor's 500-stock index with reinvested dividends by 2%.
Legg's stock is off its 52-week high of $110.17 about a year ago and is now down more than 30% in the past year and 13% in the past three months. In 4 p.m. composite trading yesterday on the New York Stock Exchange, Legg's shares were up $2.09, or 3%, to $72.05.
Another priority Mr. Fetting could continue to focus on is shoring up Legg's balance sheet as it repairs its cash funds. Already, Legg has obtained letters of credit totaling about $335 million to provide support to the two funds.
Last month, it entered into a derivative transaction, known as a "total-return swap," involving Barclays Bank PLC purchasing $890 million of certain SIV securities a fund. Legg also purchased certain SIV securities from one of its funds for $132 million.
This month, in a significant capital-raising effort, the firm announced it would sell $1.25 billion in convertible senior notes to an affiliate of Kohlberg Kravis Roberts & Co.
While transactions like these provide flexibility and a cash cushion, they can also be expensive, in particular the total-return swap. In this case, the swap involved Barclays's helping Legg shoulder the risk of holding the investments.
In the firm's earnings this week, investors will examine the charges ultimately reported on the funds, and whether the firm's overall decline in assets under management in the quarter matched estimates.
Mr. Fetting is a former executive at Prudential Financial and before that worked at firms including neighboring Baltimore rival money manager T. Rowe Price Group Inc. He began his career at Citibank NA as a commercial-lending officer and received a Master's in Business Administration from Harvard University.
At Legg, he played a major role in the Citigroup transaction. That nearly $4 billion deal involved swapping Legg's trading and brokerage business for much of Citigroup's asset-management operations about two years ago. It was initially applauded and essentially doubled Legg's assets under management. However, Mr. Mason eventually faced criticism as the cost benefits from the deal took longer to materialize.
That kind of backlash could carry over for Mr. Fetting, who must continue finding the best ways to sell Legg's products. Mr. Fetting's experiences in navigating deals such as with Citigroup and Permal will also likely come in handy now, should Legg acquire an international stock manager -- a move it has considered for a long while to increase its limited overseas offerings.
---
Joann S. Lublin contributed to this article.
