Legg Mason Makes Major Investments – Aims to Receive Major Returns
Over the last two years, Legg Mason has been negotiating deals with various companies to purchase stakes in three major management companies. The purchase of stakes in these companies will cost Legg Mason more than $1 billion throughout 2016. The company, originally based out of Baltimore Maryland has decided to expand into New York by purchasing 83% stake in Clarion Partners. This investment will cost them a total of $585 million. However, Since Clarion manages more than $40 billion in assets annually, it is said to be a very smart investment.
A second announcement brought to light a merger between Legg and Permal, a hedge fund platform that is based in New York City. They will also be purchasing 65% of the newer company, EnTrustPermal. The other 35% of the company will be owned by Gregg Hymowitz, founder and CEO of EnTrust Capital.
Apparently the mergers are already in place, according to the U.S. Securities and Exchange Commission. While many people see this as a way for Legg Mason to share their expertise, the truth is that it is an effort for them to knock off competition and create affiliates and additional revenue.
While these mergers could pay off substantially in the long run, they could also be a major burden for Legg Mason. According to Bank of America, in late 2015, the company reported major losses. By spreading themselves so thin, they could be setting themselves up for even greater losses in the near future.
Legg Mason has remained in its own comfort zone for decades and it is now branching off into areas that it has never been. This could bring a huge payoff as long as they have staff that is properly trained for this, or it could cause a substantial loss, and even bankruptcy if they are not fully prepared to take over these new business ventures.
According to economic and investment specialists, mergers that require a company to diversify its services, are not considered good business.
According to Legg, the quarterly loss after nearly $379 million to the write off of good will at Permal. According to the company, the investment was intangible and the value of the asset dropped dramatically. When this happens, it must be written off as a company loss. According to affiliates, many assets that were under management dropped dramatically as well.
Because the company did file a quarterly loss and multiple companies pulled their investments in order to protect their assets. This caused additional financial losses to the company, furthering the amount of loss they were required to file on their asset and expense report.