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Legg Mason Plans to Buy Barrett Associates


Legg Mason of Baltimore has announced it will acquire 100 percent of the privately-held stock of Barrett Associates of New York for an undisclosed amount over the next five years. Nine of Barrett's principals, as well as John D. Barrett, II, the firm's chairman and CEO, will stay on under long-term agreements each has signed, Legg Mason said in a statement.

Barrett, founded in 1937, currently manages approximately $2 billion for affluent investors and families as well as for endowments and foundations. Barrett is also the investment adviser to the $21 million Barrett Growth Fund, the firm's flagship no-load fund which was introduced in February 1999.

The purchase of Barrett Associates is in line with Legg Mason's continuing effort to acquire high-net-worth investment managers with a strong franchise, a highly committed management team and substantial asset base, said Peter Bain, executive vice president of Legg Mason. Bain was hired in June to lead Legg Mason's high-net-worth business with the goal of doubling assets of affluent investors under management in three to five years (MFMN 7/3/00)

Legg Mason's most recent domestic acquisition was in September 1999, that of Berkshire Asset Management of Wilkes-Barre, Pa. At the time, Berkshire had $600 million in assets managed for both affluent individuals and institutions.

The Barrett acquisition, however, is somewhat of a departure from Legg Mason strategy of the past several years of assembling its own value-style investment management capabilities. Barrett's expertise is in managing growth, not value investments.

"Our equity processes have absolutely leaned toward value," said Bain in an interview. "But Barrett is a great firm and we would have done this regardless."

Under the terms of the deal, Barrett, like other investment management firms Legg Mason has acquired, will be a wholly-owned subsidiary. But unlike some other firms Legg Mason has acquired, Barrett will become a subsidiary of Legg Mason Trust, fsb, the federally- chartered savings bank through which Legg Mason now offers its trust services. Legg won approval for its federal trust charter and national marketing of its services slightly over a year ago, said Bain. The eight-year-old trust company had been state-chartered.

When Legg Mason began talking to Barrett's executives, it became clear that allying the firm with Legg Mason's trust company, which had been building its growth-oriented investment management and trust services, made sense, Bain said.

"They looked at the world the same way," he said.

Placing Barrett under the trust company will considerably increase the trust company's $4 billion in assets under administration and $3.5 billion in assets under management, and augment the company's research capability, said Jennifer Reynolds, vice chairman and chief investment officer of Legg Mason Trust. It will also provide Legg with a new audience of affluent Barrett clients for its trust services, she said.

In addition, Barrett's small proprietary growth fund will be offered to small investors who are Legg Mason trust clients, said Bain.

That arrangement suited Barrett Associates' needs, said Edward J. McDermott, director of sales at Barrett. The Barrett Growth Fund, which has had outstanding performance, has gone unnoticed because it is not part of a larger family of funds and does not yet have a three-year track record, he said. Being offered to Legg Mason Trust clients will allow the fund to build its assets, he said.

The acquisition by Legg will also provide Barrett additional resources to bolster its research, sales and marketing initiatives, McDermott said. But the greatest attraction for Barrett was Legg Mason's approach to its subsidiaries, McDermott said.

"Legg Mason has a fabulous track record of acquiring managers then leaving them alone to continue their success," he said.

Even with the Barrett acquisition, Legg Mason is continuing to shop for investment managers to affluent clients, said Bain.

Bain declined to disclose the names of other firms in which Legg Mason might be interested.