Last summer, while in the throes of a transformational merger with Citigroup Asset Management, Legg Mason chairman and CEO Raymond (Chip) Mason surprised colleagues and competitors alike by anointing James Hirschmann as president and chief operating ofÞcer. Hirschmann, who had made his mark piloting Western Asset Management Co., Legg’s Þxed-income unit, was a reluctant heir apparent, telling Institutional Investor last winter that taking the promotion “was a difÞcult decision,” one that he had “thought long and hard about.”
Perhaps not long or hard enough. On April 24, Legg Mason announced that Hirschmann had resigned as president and COO of the money manager. According to a company statement, Hirschmann, 46, retains his job as CEO of Western, the largest of Legg’s 16 money managers, while Mason, 70, assumzes duties as Legg’s president. Mason, who must once again Þnd a suitable successor, agreed to continue leading the company for at least two more years.
Hirschmann had been shuttling between Baltimore, where Legg is based, and Pasadena, California, where his family lives and Western has its headquarters. According to the Legg statement, Hirschmann relinquished his responsibilities as president and COO because he had determined that the job requires “someone who will devote his or her full time and energy in Baltimore,” and he did not want to move his family. (Both Chip Mason and Hirschmann declined to elaborate.)
The shakeup comes at an awkward time. Legg had concluded its rocky integration of Citigroup Asset Management in the Þrst quarter. In the 12 months ended March 31, its funds notched inflows of $44.2 billion, a 24 percent increase over the Þgure from a year ago, thanks in part to a massive postmerger reorganization of the lineup. But with costs up and revenue down, net income fell 44 percent compared with the prior year, to $646.8 million.
Performance remains mixed. Legg’s own mutual funds returned an average 12.43 percent on an asset-weighted basis in the 12 months ended April 30, trailing the Standard & Poor’s 500 index by 281 basis points, according to Lipper. The funds that Legg acquired in the CAM deal, now called Legg Mason Partners Funds, returned an average 10.81 percent, underperforming the S&P 500 by 443 basis points.
Shareholders are impatient. Legg’s stock traded at about $100 in late May, close to where it was when Hirschmann began his tenure as COO. “They spent all this money” on the CAM acquisition, says Robert Lee, an equity analyst at Keefe, Bruyette & Woods in New York. “People want to see results.”
As for appointing a new successor to Chip Mason, Legg Mason board member Nicholas St. George says the Þrm is “regrouping at this point,” but will “continue the search both internally and externally.”
Observers say one contender is Mark Fetting. The 52-year-old head of retail distribution oversaw the rationalization of Legg and Citi funds last year and has helped chart new growth since coming on board as a strategy and acquisitions adviser in 2000.
Western has been a top performer under Hirschmann, but some industry observers question whether he will stay. “It’s unusual to step back to a lesser position,” says Dean LeBaron, who founded Batterymarch Financial Management and sold it to Legg in 1995. “It establishes a funny dynamic for anyone who becomes a successor to Chip.”
