Are you actively engaging with distributors and analysing their investment propositions or other areas of their business?
JE: Our approach is not too forensic because I think that could annoy in some cases. It is more about understanding the plans our distributors have to ready their business for Mifid II and all its implications. We are also engaging with industry bodies to ensure there is an industry approach that fulfils the requirements of Mifid II without becoming a burden to our distributors.
As well as the sales side, Mifid II has a large product governance section to it, meaning we must look at product suitability, ensuring products are aligned to the market and talking to clients to find out which solutions are best suited for them.
This has already been good business practice in the UK for a period of time.
Property funds have been in the spotlight since the Brexit vote. Do you have property funds and what is your position on this?
JS: We purchased a US private equity real estate company recently called Clarion Partners. We don’t have anything in the property space in our European fund ranges. People can take their own view around commercial property and liquidity.
The way our funds are structured in Delaware, with Clarion Partners, means they have free quarterly liquidity because of the fact they invest in physical property. We may look at opportunities to sell and transact with our European distributors around those products as they do not use daily dealing. We are comfortable that these are quarterly dealing products.
JE: It is not for us to opine whether or not a relatively illiquid asset class such as property should be in a liquid vehicle. However, there are similarities between listed infrastructure and real estate because there is a yield people are interested in.
There is an element of capital protection and real returns associated with the companies we invest in through funds such as the Legg Mason Rare Global Infrastructure Income we mentioned earlier. As a result, investors in the UK, and further afield, may start looking more in that direction.
JS: Unlisted infrastructure is not really suitable for retail investors. However, if you were getting that access to infrastructure through global equities, which is, of course, very liquid, and in a daily form, then that is perfectly reasonable.
What we are doing with Rare is providing investment in infrastructure but in a very liquid form. There are plenty of global Reits funds out there, which could be a solution, but we don’t have such a vehicle yet.
How has your US parent company reacted to Brexit?
JS: As we said earlier, we can’t predict what the UK’s relationship with Europe will be but we are well prepared whatever happens.
Legg Mason does not just talk about being global; it genuinely acts in a global manner. We have a head of global distribution who is on Legg Mason’s executive committee that sits in London. We have 22 offices around the world, so it is not just the UK that we are committed to. We did have to downsize during the financial crisis but not one of these offices were closed. In fact, we have opened more offices since then.
We are committed to continental Europe but also to our businesses in Latin America, Asia, Japan and Australia. We are a firm that sees itself as truly global.
Can you give me a sense of the proportion of business done in each of those regions?
JE: Total assets under management for the group stood at $741.9bn as of 30 June 2016. Around 40% of these assets are now outside of the US.
We can share figures that show the change between the fiscal years of 2010 and 2016. In 2010, international (non-US client-domiciled) business made up 29% ($768m) of total revenues, compared with 71% for the Americas ($1,866.9m).
By total assets under management 30% ($208.7bn) was from international and 70% ($475.8bn) from the Americas. In 2016, international (non-US client-domiciled) business made up 33% of total revenues. By total AUM, 37% was from international.