Billionaire investor Nelson Peltz made his name as an activist investor, but his strategy for money manager Legg Mason Inc, where he was named to the board on Monday, is far from obvious.

Given his history, analysts and investors said Peltz's New York-based hedge fund, Trian Fund Management, might press Baltimore-based Legg Mason, which manages $703 billion, to sell itself at a time of rapid industry consolidation.

But given the recent improvements in Legg's earnings and asset flows, Peltz may also sit back and watch for a while.

Peltz may initially have had a spin-out or sale of some of the units in mind when he took his position. However, he is probably likely to remain somewhat passive for now given how most of Legg Mason's managers are experiencing better performance, Jay Kilroy, portfolio manager at shareholder Willis Investment Council, wrote in an email.

Peltz now owns 6.94 million shares of Legg Mason. He has declined to comment on his intentions for months and on Monday a Trian spokeswoman said merely that the firm looks forward to continuing to work with management and the Board to build shareholder value.

Earlier this year, analysts speculated Legg's weakened financial position might force the company to sell itself outright.

Buckingham Research analyst William Katz wrote in a research note on Monday that Peltz might try to replace top Legg managers or renegotiate revenue-sharing arrangements with its Royce & Associates unit, which specializes in smaller companies, or its Legg Mason Capital Management unit, run by one-time star stock-picker Bill Miller.

But now, Peltz's presence on the board -- Legg expanded the size to 14 from 13 members to give Peltz a seat -- may have a stabilizing effect.

Peltz has gone after big companies before and a lot of Legg Mason investors will probably be comforted by the fact that he is in the board room, said Keith Gottfried, a partner at the law firm Blank Rome LLP who specializes in shareholder activism.

He now has a seat at the table and he can make noise, but he doesn't have control of the room.

Since sealing its own blockbuster deal in 2005, when Legg Mason's founder Raymond Mason traded his brokerage business for Citigroup's mutual funds business to create one of the industry's biggest asset managers, the company has gone from market darling to problem stock and back, analysts said.

Miller is rebounding after 2008's heavy losses. The company solved is problem with structured investment vehicles. And under CEO Mark Fetting's guidance, its share price has risen 45 percent this year -- about average for the industry.

While some investors had been skeptical about his abilities since taking over from Mason in early 2008, Fetting seems to have won more backers recently.

They stuck it out and it seems to be working, so maybe this is no time for changes, said Kenneth Crawford, a portfolio manager at Argent Capital Management, who said he supports Fetting's strategy and has added to his stake.

Indeed, Fetting has gotten high marks for having managed what could have become a prominent distraction for the company in a relatively quiet fashion.

They avoided the publicity and the cost of a potential proxy fight with Nelson Peltz, Blank Rome's Gottfried said, adding: For both parties, this is a win-win situation.

Still, the quiet and quick nature of Peltz's move onto the board rankled some investors.

I would like to know how many meetings they have had and what sorts of things were discussed and why those things weren't disclosed to shareholders, said Jeremy Hosking of London-based Marathon Asset Management LLP.

I'm fairly amazed that they even had discussions and I'd like the same level of management candor that they (Peltz's firm) have obviously extracted.

Legg Mason spokeswoman Mary Athridge declined to give a breakdown of how the company's board voted on offering Peltz a seat at the table.

(Reporting by Ross Kerber and Svea Herbst-Bayliss; additional reporting by Joseph A. Giannone in New York; editing by Andre Grenon)

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