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Legg Mason Beats Fiscal First-Quarter Views

Assets rise to record $992 billion, but equity funds see outflows due to underperformance.
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Legg Mason

(LM) -

reported a 22% increase in earnings for the first quarter of fiscal year 2008, driven by a rise in assets under management.

The Baltimore asset management company earned $191 million, or $1.32 per share, in the three months ended June 30, compared with $156 million, or $1.08 a share, a year earlier.

Revenue totaled $1.21 billion, up 16% from a year ago, reflecting a higher level of average assets under management in all asset classes and a substantial increase in performance fees earned by the Permal Group, the company's funds-of-hedge funds manager.

Analysts polled by Thomson Financial were expecting the company to post earnings of $1.24 a share on revenue of $1.17 billion.

Legg Mason swapped asset management and brokerage operations with

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(C) -

two years ago.

Total assets under management rose to a record $992 billion, up 16% on the year. The company said this was largely due to market appreciation, rather than new money from clients. In particular, the firm's equity products benefited from generally favorable market conditions, especially in small-cap and emerging markets equities. Performance fees for the quarter were $54.3 million, up from $17.9 million a year ago.

Legg Mason took in a net $2 billion of new money during the quarter, as investors added $2 billion more to the firm's bond and money market products than they pulled out of its equity products.

Clients added a net $8 billion to Legg Mason's fixed-income products and $1 billion to its money market accounts, but pulled a net $7 billion from equity funds.

Raymond A. "Chip" Mason, chairman and CEO, expressed concern about an increased amount of equity outflows in the quarter. "Relative underperformance in some of our largest equity products continues to have a negative impact," Mason said, "a situation that is of concern, and one that we monitor closely in conjunction with our managers. While we believe progress is being made, further improvement in performance will be critical to reverse this trend."

Shares were down $3.21, or 3.3%, to $95.37 in recent trading.