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Baltimore-based Legg Mason Inc. ((LM - Analyst Report) experienced a slight decline in its April 2012 assets under management (AUM) on a sequential basis, driven by decreases in equity and liquidity AUM which offset the rise in fixed income AUM. Preliminary month-end AUM came in at $639.3 billion, down 0.6% from the prior month.

Legg Mason’s equity AUM as of April 2012 declined 2.4% from the prior month to $159.4 billion, while fixed income AUM moved up 1.0% to $359.6 billion.

The fall in equity AUM, partially offset by rise in fixed income AUM, resulted in slightly decreased long-term AUM of $519.0 billion compared to the prior month. Moreover, liquidity assets, which are convertible into cash, dipped 2.8% to $120.3 billion from $123.8 billion at the end of March 2012.

On a quarterly basis, as of March 31, 2012, Legg Mason’s AUM was $643.3 billion, up 2.6% sequentially from $627.0 billion as of December 31, 2011, driven by market appreciation of $24.4 billion, partially offset by net client outflows of $4.9 billion and dispositions of $3.2 billion.

Fixed income represented 55% of consolidated AUM as of March 31, 2012, while liquidity and equity represented 19% and 26%, respectively.

During the quarter, fixed income outflows for Legg Mason were approximately $2.8 billion and equity outflows were $4.9 billion. However, liquidity inflows were $2.8 billion. Average AUM was $634.9 billion, up 2.1% from $622.0 billion in the prior quarter.

Peer Performance

One of Legg Mason’s peers, Invesco Ltd. (IVZ - Analyst Report), also announced a marginal decline of 0.7% in its preliminary month-end AUM for the month of April 2012. The company’s AUM for the reported month was $668.4 billion compared with $672.8 billion at the end of March 2012.

Invesco’s April AUM decline resulted from total net outflows and market depreciation which consequently offset the inflows from foreign exchange worth $2.3 billion. Total net outflows included $2.6 billion worth of payment for Invesco PowerShares QQQ and $0.9 billion active fixed income outflow from the UK.

However, another peer, Franklin Resources Inc. (BEN - Analyst Report) witnessed a slight rise in its preliminary month-end AUM for April 2012. The company reported preliminary AUM of $726.4 billion for its subsidiaries, reflecting 0.1% increase from $725.7 billion as of March 31, 2012.


We believe Legg Mason has the potential to perform better than its peers in the long run, given its diversified product mix and leverage to the changing demographics in the market. However, in the near term, assets outflows will remain a significant headwind. With restructuring initiatives and cost-curtailing measures, we expect operating leverage to improve, and dividend payments to continue inspiring investors’ confidence in the stock.

Legg Mason currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain long-term Neutral recommendation on the stock.

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