Wamco chief ôback on offenceö
Jim Hirschmann, CEO at Western Asset, explains the bond firmÆs Asia strategy after acquiring CitigroupÆs asset-management business.
James Hirschmann is CEO of Western Asset (aka Wamco), Legg Mason-owned fixed-income specialist. Based dually in Pasdena, California and Baltimore, Hirschmann played a role in Legg MasonÆs 2005 deal to exchange its brokerage arm for CitigroupÆs asset-management business.
How involved have you and Western been in the acquisition of Citigroup Asset Management by Legg Mason?
Hirschmann: I was very involved. The deal wouldnÆt have happened if Western hadnÆt been on board. The attraction was CitigroupÆs complementary business. We decided in the 1990s that we had to become a global firm, and to become one, we would need an integrated approach.
First in 1996 we acquired Lehman BrothersÆ international, ex-US asset-management business in London. I moved with my family to London in 1997 to integrate the business. Then in 2003 we acquired RothschildÆs asset management business in Singapore. But integrating these has been easier said than done.
What was the strategy behind these deals? Why these acquisitions?
They had to fit from a client perspective and from an investor perspective. Legg Mason probably gets shown deals on a daily basis. If something makes sense, weÆll look at it. The Lehman business got us into Europe. Rothschild gave us a toehold in Asia. Citigroup completed our move to become a global player.
What has the Citi deal brought?
In terms of expertise, weÆve picked up a liquidity effort and a municipal effort in the US, as well as a liquidity team in the UK. And weÆve broadened our offering in high yield and emerging markets. And, most exciting, itÆs expanded our Asia entry. WeÆve acquired CitigroupÆs local currency business in Japan. We have a new office in Hong Kong and in Melbourne. And we combined CitigroupÆs operations in Singapore with our own to double our presence there. We now have local-currency capabilities in many Asian markets. WeÆve gone from three to eight global offices in seven countries. We have the ability to distribute Western Asset products in any of those offices.
How big is the firm in terms of AUM?
The last figures I saw, we manage around $570 billion, but itÆs probably closer now to $600 billion.
What were the integration headaches you had to deal with in the Citi deal?
The operational piece went incredibly well. WeÆve done this before. We were able to retain those people we wanted. But the deal was complex. We were pulling fixed-income people out of an integrated asset-management business. But we retained more client assets than we had expected.
What was the biggest challenge?
It was culture. This business takes time, itÆs built on trust and confidence. It will take two or three years to get everything in place. The same thing was true with the Lehman and Rothschild deals. People in large financial institutions are pretty cynical about your culture and your story.
How would you describe WesternÆs culture, particularly vis a vis rivals such as Pimco and BlackRock?
Pimco is a macro firm with a star system û itÆs Bill Gross. BlackRock is more of an index-plus type of firm that does more in areas such as mortgages and structured products. Our approach is more team based. People at Western donÆt have titles on their business cards; our offices are open plan.
What is the Asia footprint now?
In Tokyo we have 30 employees and a $50 billion business. We now have two employees in Hong Kong handling client servicing for North Asia. In Singapore we have 30 employees and about $2 billion of business. And we manage $5-6 billion in Australia.
WhatÆs next?
WeÆve learned from our experience in London that to be really successful, it is important to be a domestic manager of local-currency bonds. We identify developing capital markets. The dynamics that saw the UK and Europe develop their bond markets to US levels we now see in Japan, where the market is expanding away from government bonds. We see it over the longer term in China.
Will you add new offices?
I feel good about the platform we have now. But we will pay attention to Korea, Taiwan and China, should these markets develop. A big question is how to enter the China market. The pros are obvious: the size of the market, the accumulation of wealth there. But itÆs closed.
Have you done JVs before? Because youÆd likely need one to be in China.
Yes we have. Our first venture outside of the US was an alliance with Lombard Odier.
Does that still exist?
No. But we also have a relationship with Perennial Partners in Australia that has been very successful. That still continues. ItÆs been a great relationship. But itÆs been challenged by the Citi deal, as we now have our own presence there. So weÆre both looking at how that relationship fits now.
Where in Asia do you have local-currency bond expertise?
Japan, Singapore, Hong Kong, the Philippines, Malaysia, Indonesia and Australia. We want to get into China, but we havenÆt made a decision about that yet.
Do clients generally hire Western for its global expertise, run out of money centres like New York and London, or for local bond management?
Clients want both.
Are you also developing a retail business?
Yes, that was a major benefit from the Citi deal. Prior to this, we were limited to selling through Legg MasonÆs brokerage arm, because other brokers wouldnÆt touch us. Now that weÆre independent, weÆre in discussions with brokers globally. And weÆve picked up CitigroupÆs enormous family of funds.
Through CitigroupÆs banking operation we now sell into retail. Legg Mason now has 400 professionals supporting our retail network, of whom 250 are outside the United States. We have funds sold in Australia, Japan, Hong Kong, Taiwan and Singapore, for example.
Before the acquisition, around 8% of WesternÆs AUM was derived from sub-advising retail products. Now itÆs 30-35%. Ideally IÆd like to see a 50/50 split. The initial read from retail markets is heartening. ThereÆs a scarcity value because retail investors havenÆt had access to Western before. But we donÆt have a retail brand, thatÆs something we need to develop.
How much of WesternÆs own time goes into this?
WeÆre focused on institutions. We sub-advise Legg Mason mutual funds but in this sense, Legg Mason is like an institutional client. We see a real opportunity in Japan. WeÆve just received a license to solicit our yen expertise to local pension funds. Corporatate, government, non-profit, insurance-company and sub-advisory opportunities all exist in Japan, and in the region.
How has your time management changed since the Citi deal?
Well weÆve gone from three offices to eight, so itÆs a challenge to be in all of those time zones. PeoplesÆ days have grown longer. ThereÆs a lot of travelling. But thereÆs also a lot of opportunity.
Have you been able to retain staff?
Yes. It was straightforward on the investment front. A lot of Citigroup people were tickled pink to join an independent asset manager, let alone a fixed-income specialist. Beyond that, it got complicated. Client servicing, marketing, compliance, the back office û Citigroup did both fixed income and equities. We worked with Legg Mason to identify the people we thought would be more interested in working on the bonds side. WeÆve filled all the positions that weÆve needed.
But youÆve also lost some portfolio talent in Asia: your senior credit analyst, Tshua Ngee; your high-yield credit analyst, Yeo Li-Ping; and your head of investments in Singapore, Tan Leng-Leng.*
When we did the deal, we assumed no Citigroup people would join us because it would be redundant. But we were impressed by them, so instead we decided to double the team, assume some attrition, and grow the business along with the markets. To have 30 people in Singapore managing $2 billion, IÆd say thatÆs a pretty sizeable team.
Leng-Leng had been with Rothschilds, and she left when we appointed Soo How from Citigroup as the leader of our Asian fixed-income team. Tshua was a credit specialist and wanted to become more of a generalist. And Li-Ping had been a Western employee before the deal who left when the units were combined.
Globally, with spread products so expensive, it seems bond houses will be challenged to provide alpha and raise assets. Do you agree?
Yes, itÆs a tricky time for fixed income. There are few screaming opportunities. Credit spreads have never been so thin. WeÆre value players and itÆs hard work. But there are still opportunities for managers to grow assets. You have to be dynamic in your product development. Traditional bond products are under pressure, but absolute-return products have been popular. We donÆt have hedge funds but we have æalternative-liteÆ products, including absolute return, structured products like CDOs and CLOs, portable alpha, and in the US, closed-end funds.
If we do another interview this time next year, what do you hope the organisation will look like?
WeÆll have a more significant local-currency business in Japan and throughout Asia. WeÆll have more product distribution throughout the region, both for institutions and retail. And weÆll have a better idea on how to deal with the China question. Last year we focused on integration. This year weÆre back on offence.
*Tan Leng-Leng joined the Government Investment Corporation of Singapore; Yeo Li-Ping joined Schroder Investment Management; Tshua Ngee has reportedly joined a boutique fund manager in Singapore.
How involved have you and Western been in the acquisition of Citigroup Asset Management by Legg Mason?
Hirschmann: I was very involved. The deal wouldnÆt have happened if Western hadnÆt been on board. The attraction was CitigroupÆs complementary business. We decided in the 1990s that we had to become a global firm, and to become one, we would need an integrated approach.
First in 1996 we acquired Lehman BrothersÆ international, ex-US asset-management business in London. I moved with my family to London in 1997 to integrate the business. Then in 2003 we acquired RothschildÆs asset management business in Singapore. But integrating these has been easier said than done.
What was the strategy behind these deals? Why these acquisitions?
They had to fit from a client perspective and from an investor perspective. Legg Mason probably gets shown deals on a daily basis. If something makes sense, weÆll look at it. The Lehman business got us into Europe. Rothschild gave us a toehold in Asia. Citigroup completed our move to become a global player.
What has the Citi deal brought?
In terms of expertise, weÆve picked up a liquidity effort and a municipal effort in the US, as well as a liquidity team in the UK. And weÆve broadened our offering in high yield and emerging markets. And, most exciting, itÆs expanded our Asia entry. WeÆve acquired CitigroupÆs local currency business in Japan. We have a new office in Hong Kong and in Melbourne. And we combined CitigroupÆs operations in Singapore with our own to double our presence there. We now have local-currency capabilities in many Asian markets. WeÆve gone from three to eight global offices in seven countries. We have the ability to distribute Western Asset products in any of those offices.
How big is the firm in terms of AUM?
The last figures I saw, we manage around $570 billion, but itÆs probably closer now to $600 billion.
What were the integration headaches you had to deal with in the Citi deal?
The operational piece went incredibly well. WeÆve done this before. We were able to retain those people we wanted. But the deal was complex. We were pulling fixed-income people out of an integrated asset-management business. But we retained more client assets than we had expected.
What was the biggest challenge?
It was culture. This business takes time, itÆs built on trust and confidence. It will take two or three years to get everything in place. The same thing was true with the Lehman and Rothschild deals. People in large financial institutions are pretty cynical about your culture and your story.
How would you describe WesternÆs culture, particularly vis a vis rivals such as Pimco and BlackRock?
Pimco is a macro firm with a star system û itÆs Bill Gross. BlackRock is more of an index-plus type of firm that does more in areas such as mortgages and structured products. Our approach is more team based. People at Western donÆt have titles on their business cards; our offices are open plan.
What is the Asia footprint now?
In Tokyo we have 30 employees and a $50 billion business. We now have two employees in Hong Kong handling client servicing for North Asia. In Singapore we have 30 employees and about $2 billion of business. And we manage $5-6 billion in Australia.
WhatÆs next?
WeÆve learned from our experience in London that to be really successful, it is important to be a domestic manager of local-currency bonds. We identify developing capital markets. The dynamics that saw the UK and Europe develop their bond markets to US levels we now see in Japan, where the market is expanding away from government bonds. We see it over the longer term in China.
Will you add new offices?
I feel good about the platform we have now. But we will pay attention to Korea, Taiwan and China, should these markets develop. A big question is how to enter the China market. The pros are obvious: the size of the market, the accumulation of wealth there. But itÆs closed.
Have you done JVs before? Because youÆd likely need one to be in China.
Yes we have. Our first venture outside of the US was an alliance with Lombard Odier.
Does that still exist?
No. But we also have a relationship with Perennial Partners in Australia that has been very successful. That still continues. ItÆs been a great relationship. But itÆs been challenged by the Citi deal, as we now have our own presence there. So weÆre both looking at how that relationship fits now.
Where in Asia do you have local-currency bond expertise?
Japan, Singapore, Hong Kong, the Philippines, Malaysia, Indonesia and Australia. We want to get into China, but we havenÆt made a decision about that yet.
Do clients generally hire Western for its global expertise, run out of money centres like New York and London, or for local bond management?
Clients want both.
Are you also developing a retail business?
Yes, that was a major benefit from the Citi deal. Prior to this, we were limited to selling through Legg MasonÆs brokerage arm, because other brokers wouldnÆt touch us. Now that weÆre independent, weÆre in discussions with brokers globally. And weÆve picked up CitigroupÆs enormous family of funds.
Through CitigroupÆs banking operation we now sell into retail. Legg Mason now has 400 professionals supporting our retail network, of whom 250 are outside the United States. We have funds sold in Australia, Japan, Hong Kong, Taiwan and Singapore, for example.
Before the acquisition, around 8% of WesternÆs AUM was derived from sub-advising retail products. Now itÆs 30-35%. Ideally IÆd like to see a 50/50 split. The initial read from retail markets is heartening. ThereÆs a scarcity value because retail investors havenÆt had access to Western before. But we donÆt have a retail brand, thatÆs something we need to develop.
How much of WesternÆs own time goes into this?
WeÆre focused on institutions. We sub-advise Legg Mason mutual funds but in this sense, Legg Mason is like an institutional client. We see a real opportunity in Japan. WeÆve just received a license to solicit our yen expertise to local pension funds. Corporatate, government, non-profit, insurance-company and sub-advisory opportunities all exist in Japan, and in the region.
How has your time management changed since the Citi deal?
Well weÆve gone from three offices to eight, so itÆs a challenge to be in all of those time zones. PeoplesÆ days have grown longer. ThereÆs a lot of travelling. But thereÆs also a lot of opportunity.
Have you been able to retain staff?
Yes. It was straightforward on the investment front. A lot of Citigroup people were tickled pink to join an independent asset manager, let alone a fixed-income specialist. Beyond that, it got complicated. Client servicing, marketing, compliance, the back office û Citigroup did both fixed income and equities. We worked with Legg Mason to identify the people we thought would be more interested in working on the bonds side. WeÆve filled all the positions that weÆve needed.
But youÆve also lost some portfolio talent in Asia: your senior credit analyst, Tshua Ngee; your high-yield credit analyst, Yeo Li-Ping; and your head of investments in Singapore, Tan Leng-Leng.*
When we did the deal, we assumed no Citigroup people would join us because it would be redundant. But we were impressed by them, so instead we decided to double the team, assume some attrition, and grow the business along with the markets. To have 30 people in Singapore managing $2 billion, IÆd say thatÆs a pretty sizeable team.
Leng-Leng had been with Rothschilds, and she left when we appointed Soo How from Citigroup as the leader of our Asian fixed-income team. Tshua was a credit specialist and wanted to become more of a generalist. And Li-Ping had been a Western employee before the deal who left when the units were combined.
Globally, with spread products so expensive, it seems bond houses will be challenged to provide alpha and raise assets. Do you agree?
Yes, itÆs a tricky time for fixed income. There are few screaming opportunities. Credit spreads have never been so thin. WeÆre value players and itÆs hard work. But there are still opportunities for managers to grow assets. You have to be dynamic in your product development. Traditional bond products are under pressure, but absolute-return products have been popular. We donÆt have hedge funds but we have æalternative-liteÆ products, including absolute return, structured products like CDOs and CLOs, portable alpha, and in the US, closed-end funds.
If we do another interview this time next year, what do you hope the organisation will look like?
WeÆll have a more significant local-currency business in Japan and throughout Asia. WeÆll have more product distribution throughout the region, both for institutions and retail. And weÆll have a better idea on how to deal with the China question. Last year we focused on integration. This year weÆre back on offence.
*Tan Leng-Leng joined the Government Investment Corporation of Singapore; Yeo Li-Ping joined Schroder Investment Management; Tshua Ngee has reportedly joined a boutique fund manager in Singapore.
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