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Legg Mason brings in reinforcements

With Legg Mason Inc.’s acquisition of QS Investors, announced Tuesday, and the restructuring of its quantitative equity platform, the Baltimore asset manager’s most struggling principal affiliate will join forces with a strong and specialized partner.

Legg Mason’s own affiliate, Batterymarch Financial Management Inc., which it took over in 1995, uses quantitative techniques like QS Investors’, but it has struggled in recent years.

Along with another specialty affiliate, Legg Mason Global Asset Allocation, it will be integrated over time into QS Investors, under that brand and with the leadership of CEO Janet Campagna and Chief Investment Officer Rosemary Macedo.

Batterymarch had more than $20 billion in assets under management in June 2011, but that plummeted over the next 2½ years. As of December 2013, the affiliate had $10.7 billion in assets under management.

In 2011, Legg Mason attributed an outflow of $5.8 billion in one quarter to depreciation in equity markets, especially in emerging markets.

“Emerging markets have been a difficult space … performance has not been strong,” said Macrae “Mac” Sykes, an analyst for Gabelli & Co. who covers Legg Mason.

The acquisition of QS may allow for the restructuring that Batterymarch needs, he said.

“They (QS) certainly bring expertise in the space,” said Sykes. “There’s the ability to leverage their knowledge base as well as their client base.”

Legg Mason CEO Joseph A. Sullivan acknowledged Batterymarch’s struggles in a Tuesday conference call with investors about the acquisition, saying that there may be some continued losses immediately following the restructuring.

“We know that our colleagues at Batterymarch have been under some pressure and they’ve had some outflows,” he said. “They’ve largely stabilized, but there’s still a little bit of pressure on those guys.”

According to its website, LMGAA, founded in 2006, manages and advises more than $10.6 billion. QS has only $4.1 billion under management, but nearly $100 billion under advisory.

Legg Mason’s news release did not disclose the terms of the acquisition, but said the company expects to incur restructuring and transition costs of approximately $35 million, including $3 million in the March 2014 quarter and $30 million in the next fiscal year.

While this change could be helpful for Batterymarch, it’s not a game changer for Legg Mason compared with some of the other measures it has taken in recent years, said Sykes.

“This is one minor aspect of that,” he said. “The bigger moves have been the major restructuring a couple of years ago.”

Legg Mason’s stock closed at $46.65 Tuesday, up 2.96 percent.