Legg Mason Buys Majority Interest In Clarion Partners

Legg Mason Inc., in a bid to beef up its presence in alternative investments, agreed to buy a majority interest in real estate investment firm Clarion Partners, and said it would merge its Permal hedge fund platform with EnTrust Capital.

The firm also made a deal to expand its exchange-traded fund business by taking a minority position in Precidian Investments, which is trying to win regulatory approval for a technology that could speed the growth of actively managed ETFs.

Shares of Legg Mason fell as much as 6.8 percent, the biggest drop since August, after the company reported a loss for its fiscal third quarter related to an impairment charge against the Permal unit. Legg Mason was down 3.9 percent to $30.52 at 12:06 p.m.

Joseph A. Sullivan, who was named chief executive officer in 2013, has been guiding the company through a turnaround after a long period of client redemptions following the financial crisis of 2008. Sullivan, who has made other acquisitions to expand Legg Mason’s lineup, had said he wanted to added more alternatives to the mix.

“With these deals, he is bolstering assets under management and giving Legg Mason new engines of growth in some of the fastest-growing parts of the industry,” Macrae Sykes, an analyst with Gabelli & Co., said in an interview.

Alternative products, including hedge funds and real estate, have grown in popularity as investors look for ways to diversify into assets that are not correlated with stocks and bonds.

Real Estate Deal

Legg Mason will take an 83 percent stake in Clarion for $585 million, with the remainder being held by Clarion’s management team, the company said in a statement Friday. The deal adds about $40 billion in real estate assets under management. Bloomberg reported earlier this month that Legg Mason was in exclusive talks to buy a majority stake in Clarion.

The Baltimore-based firm, in a separate statement, announced that Permal will be combined with EnTrust, a New York- based hedge fund investor with $12 billion under management, into a new business called EnTrustPermal in which Legg Mason will own 65 percent. The combination will create a business with more than $26 billion under management.

Under the terms of the Precidian investment, Legg Mason bought a new class of preferred shares, which give it the rights of a holder of 19.9 percent of common equity, with the option to acquire a majority interest, the company said in a statement.

ETF Technology

Precidian’s ActiveShares mechanism, which has yet to be approved by the U.S. Securities and Exchange Commission, would allow active managers to deliver their strategies within the ETF structure without disclosing underlying holdings daily. Currently, the vast majority of ETFs track indexes.