Proprietary mutual funds continue to disappear.
Legg Mason announced today the renaming of a bulk of the Smith Barney funds as the Legg Mason Partners Funds in the wake of last year’s blockbuster deal. The move marks the first step in the product integration process under the Citigroup/Legg Mason transaction that closed on Dec. 1, 2005.
“The change allows the investment community to further understand and recognize that the family of investment products formerly affiliated with Citigroup is now affiliated with a pure asset-management firm with a proven track record of investment performance,” said Peter Cieszko, managing director and head of U.S. distribution for Legg Mason, in a prepared statement.
Last June, Citigroup exited the mutual fund business when it traded its money-management arm for Legg’s brokerage operations. Citigroup made the swap in part because of continued poor performance and sales. In addition, the potential compliance hassles and legal risk far outweighed the profitability of the unit.
In light of the dustup over conflicts of interest and increasing regulatory pressure, banks, brokerages and insurance firms have been scrambling to separate asset management from distribution, either by renaming their funds, spinning off their asset managers or exiting the fund business altogether.
“This is one more step toward proprietary funds no longer being available through the different distribution channels,” says Jeff Keil, principal of Keil Fiduciary Strategies, a Littleton, Colo.-based consultancy. “The standard wirehouse funds are fading away.”
Sales of the Smith Barney funds, which had $54 billion in assets as of Dec. 31, 2005, have been uninspiring to say the least. The funds suffered net outflows of nearly $6 billion in the last three years, according to Financial Research Corp. Subpar performance and the stigma attached to selling homegrown products appear to be the reasons.
While it is too soon to tell if there will be a shake-up in portfolio-management teams or closures or mergers of funds that overlap each other, the company is conducting a strategic review of its offerings. “They are looking at the fund lineup and determining what makes sense,” says Mary Athridge, a spokeswoman for Legg Mason.
As for the remaining Smith Barney products, Legg Mason plans on rebranding its variable annuities on May 1 and its closed-end funds during the summer months, Athridge says. The company expects the entire product integration to be completed by the end of the year.