Legg Mason creates managed-account overlay group

Thomas Coyle

3 April 2007

Manager extends ex-Citi unit's overlay capabilities to other subsidiaries. Legg Mason has created an investment-advisory unit to manage its $65-billion retail separately managed account platform. Legg Mason Private Portfolio Group will contract with Legg Mason investment management subsidiaries to provide sub-advisory services for client accounts and serve as a centralized point of contact for Legg Mason's SMA sponsor clients.

"This about making sure we're supplying the best possible products to our clients -- the sponsors and the advisors," says LMPPG president Roger Paradiso, formerly a managing director with ClearBridge and head of its $20-billion multiple-discipline account program -- a role he also held at Citigroup Asset Management.

Baltimore-based Legg Mason inherited the biggest retail SMA program in the industry at the end of 2005 when it acquired Citigroup's asset-management business -- since re-named ClearBridge Advisors. The sponsors that use its SMAs collectively account for 85% of retail SMA distribution, according to Legg Mason's take on industry figures tallied by market-research firm Cerulli Associates. Legg Mason's biggest SMA-distribution partner is Citigroup's Smith Barney.

Easier access

In effect, LMPPG takes capabilities that used to reside in ClearBridge and makes them readily available to all Legg Mason subsidiaries.

LMPPG will manage portfolios based on the investment instructions provided by the sub-advisors as well as for overlay portfolio management, client management, execution, private-client services and MDA and account rebalancing, as needed.

Overlay management is the process of aligning trading activity, managing cash flow and enhancing the overall tax efficiency of multiple-sleeve investment portfolios.

Sensitivity to the managers' directions is an important point to Legg Mason and an important selling point to MDA sponsors. Paradiso says LMPPG takes a "investment-oriented" approach to overlay management that safeguards the "integrity of the mangers."

In 2005 else IXIS carved out its own overlay division. Like LMPPG, Oakland, Calif.-based Managed Portfolio Advisors emphasizes its ability to stay true to the style and intentions of its sub-advisors.

For now LMPPG's sub-advisors will be Legg Mason subsidiaries ClearBridge, Western Asset and Brandywine Global, and the door is open to Legg Mason's seven other U.S.-based money managers. Additionally, though it's not at the top of anyone's to-do list, LMPPG will move to accommodate unaffiliated managers. "That's always an option," says Paradiso. "Our platform is certainly able to do that."

IXIS' MPA, which accommodates affiliates and unaffiliated managers, recently replaced ClearBridge as overlay manager to Brinker Capital, a Berwyn, Pa.-based investment-platform provider.