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Bruised And Battered Legg Mason Poised For A Comeback

This article is more than 10 years old.

It's been a brutal few years for Legg Mason but there may be some hope for the battered asset management company.

Hope comes in the form of Joseph Sullivan, the new CEO who took the job in February.

Sullivan was interim CEO since October and the board officially chose him remain CEO in February. Shares of the company are up 25% since then. That performance trumps competitors like T Rowe Price (8%), Franklin Resources (3.7%), Invesco (19%) and Waddell & Reade (21%).

Legg's rise in shares comes after many struggles including billions in net outflows, billions in quarterly losses, hundreds of layoffs and the loss of its second ever CEO who served for just four years before resigning.

But Sullivan began his efforts to turn the place around while he was still interim CEO moving forward with plans to purchase European hedge fund manager, Fauchier Partners Management, a in a deal worth about $130 million. He's helped launch over a dozen new products in the last year and moved to boost performance of its existing platform of funds.

"If you have enough different products that you’re creating, you don’t need all of them to work. You just need a few of them to work, and hopefully to work big," Sullivan told the Baltimore Business Journal in March.

It's early but his efforts seem to be paying off some already. Net flows aren't totally positive but outflows are slowing greatly to $1.8 billion in the most recent quarter ending in March 2012.. Compare that to outflows of $4.9 billion in the comparable quarter last year and $7.5 billion in the quarter ending December 2012.

Of Legg's total strategy AUM 85% is beating its respective benchmark on a 3-year basis compared with 81% last year. On 5-year strategy AUM 88% is beating the benchmark compared to 70% last year.

Legendary stock maven Bill Miller appears to be back on top as well after a fall from grace. Miller's Legg Mason Opportunity Trust finished first in The Wall Street Journal's ranking of diversified U.S.-stock mutual funds with more than $50 million in assets and at least a three-year record.

Sullivan still has a long way to go to get shareholders back to where they were before the crisis when Legg sold off toxic structured investment vehicles from its money market funds.

But the new CEO, who's been with the company sine 2008, has something his predessor was lacking: the support of investors, namely major activist shareholder, Nelson Petlz. The hedge fund titan serves on the board of Legg Mason and his Trian Fund Management owns just over 10% of the company.

Peltz told Barrons he was "thrilled" over Sullivan's selection as CEO of Legg Mason. Peltz served on the CEO search committee.

While Peltz clearly has an interest in seeing a big turnaround at Legg Mason a better indicator of the investment company's prospects comes from one of its biggest competitors.

T Rowe chairman Brian Rogers praised Legg's progress in April telling shareholders at an annual meeting that Legg Mason has been a "great investment this year." Rogers added, "I wish all our investments were doing as well."

Keep an eye on Legg earnings when it reports on Thursday.