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Jim Hirschmann enjoys showing visitors round the light, bright open-plan offices that Western Asset Management occupies in London. The colourful decor and modern art echo the design features of the head office in Pasadena, California, says the equally bright and breezy Mr Hirschmann, who heads the company and will be stepping up to the top job at parent company Legg Mason when Chip Mason retires, probably this year.
Creating similar office environments around the world is all part of running an integrated business, he says. He has plenty of experience of integrating businesses, most recently dealing with the fixed-income side of the Citigroup asset management division that Legg Mason swapped in 2005 for its brokerage and capital markets business, which took assets from $250bn at the end of 2005 to $575bn a year later.
He also spent time in London in the late 1990s integrating Lehman Brothers Global Asset Management following its acquisition in 1996.
But he has rarely spoken to the press about his business, as Western has until now avoided publicity, in spite of being one of the biggest fixed income managers in the industry.
Mr Hirschmann attributes this shyness to the structure of the business prior to the Citigroup deal. Retail distribution through Legg Mason’s brokerage was difficult owing to that business’s heavy equity bias, reflecting the long-term success of Legg’s Bill Miller, one of the US mutual fund industry’s best-known equity fund managers. And other brokers were not interested in selling the products of a competitor.
As a result, institutional business accounted for more than 90 per cent of the company’s assets, and Mr Hirschmann saw no need, and did not think it served clients’ interests, to be out in the press.
Now, however, Legg Mason has shed its brokerage, and retail business accounts for 35 per cent of Western’s assets under management. Raising the profile of the business makes sense to aid the distribution effort.
Western has been well known in institutional circles for some years, but it was tough at the outset in Europe. “The name recognition was not there,” says Mr Hirschmann, recounting how in his first week in London potential clients looked blankly at the Western name and associated the Legg Mason name with women’s tights – Leggs being a US brand of pantyhose.
“We began here with $3bn and 30 employees in 1997. Just before the [Citigroup] deal, that had grown to $60bn-$65bn and 75-80 people, and increased to $85bn post acquisition,” he says.
Western only ran $4bn in total when Mr Hirschmann joined the company in 1989. “I was about the 25th employee and we had three basic products.” Western was born out of the First Interstate Bank, and its original clients, some of which are still with the company, were through banking relationships. Employee turnover is “incredibly low” by industry standards, he adds.
Western was US-based until the mid-1990s, when it began looking at how to satisfy growing client demand for non-US investments.
So it was almost for defensive reasons that Western moved into London, says Mr Hirschmann, but it arrived at an opportune time. “UK pension fund assets were in balanced funds with mediocre fixed-income management. The US had gone through the move from balanced to specialist managers 10 years previously. We saw the same happening here and took advantage.”
Expansion into Asia followed in 2003 when Western acquired the Rothschild Asset Management team in Singapore. The Citigroup deal added offices in New York, Japan, Hong Kong, Australia and Brazil.
The Citigroup offices Western inherited were independent, with little interaction between them. That is not the Western way, which is to insist on common standards throughout. “It goes from the smallest thing, like the size of paper, to the way you treat employees and invest client assets.”
Regular communication is also a strong element. “The investment team gets together on a daily basis in one shape or form,” Mr Hirschmann says.
He is upbeat about the progress of the Citigroup integration. The operational parts are complete; Western met or exceeded most of its targets and retained most of the Citi people it wanted as well as the clients.
Going forward, the challenge is to get the business integrated, continue to recognise the changing dynamics of the fixed-income markets and offer clients solutions, Mr Hirschmann says. “We also have to provide returns that are best in class and service that is among the best in the industry.”
He ranks Western alongside Pimco and BlackRock but cannot say what Western’s market share is. He points instead to the 739 clients Western looks after globally, about a third of which use the company for more than one mandate.
The company can offer any fixed-income solution or opportunity that exists in any currency base, he says. There is little more it needs, except perhaps a team in another country.
Ideally, he would like to see retail business grow to take a 50 per cent share. Diversification by client type and geography is part of the business plan. The international share of business has been growing and currently stands at 30 per cent. He expects that to continue and sees better growth opportunities outside the US.
One opportunity he will not be pursuing, though, is hedge funds, having already tried that. “We thought we could take our best ideas, put them in a hedge fund and leverage them. We raised $1bn but ultimately it was a challenge.” Having been set up in September 2001, the fund was closed in August 2004 and money returned to investors. “We had good performance but we didn’t want to risk a $100bn business for $1bn,” he says.
Western does run close to $2bn in absolute return strategies, though, using its best ideas in unconstrained portfolios. “There is no leverage but we can go short.”
The hedge fund experiment did have one positive outcome, introducing a more sophisticated risk management approach and technology base. “It is very different from what we had before. We spend 10 per cent of our revenues on IT and risk management tools,” Mr Hirschmann says.
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