Franklin, on ETF Tear, Spending $925M on Putnam

Franklin Resources Inc. is buying asset manager Putnam Investments for $925 million in stock and cash as it seeks to build a $50 billion exchange-traded fund business. 

Franklin is buying Putnam from Canadian financial services firm Great-West Lifeco Inc. as part of a multiparty deal also involving Power Corp. of Canada, which owns 70% of Great-West.  

As part of the deal, Power Corp. will take a 6.2% stake in Franklin and give an initial sum of $25 billion in assets for Franklin’s managers to invest, with more to follow, the companies said in a statement.  

The purchase is the third by Franklin, which manages $11.6 billion in 59 U.S. exchange-traded funds, in the past two years. Putnam had $136 billion in assets under management as of last month, adding to Franklin’s $1.4 trillion in assets. Franklin’s ETF assets grew from about $9 billion in late October. 

Franklin, often known by its subsidiary’s operating name Franklin Templeton, has said it’s seeking to build a heavy-hitter ETF business, and as part of that effort, has converted a handful of mutual funds into ETFs. Demand for exchange-traded funds is rising faster than that for mutual funds as investors and asset managers favor their easier trading and tax benefits.  

The deal follows Franklin’s 2022 purchase of European asset fixed income asset manager Alcentra from BNY Mellon. Templeton paid $350 million with a potential $350 million depending on performance over the following four years, and added $35 billion in assets under management.  

That came on the heels of its 2022 acquisition alternative asset manager Lexington Partners , which has $57 billion in AUM. Franklin paid $1.75 billion for Lexington, which had $57 billion at the time of the deal closing. 

Franklin’s biggest ETF is the Franklin U.S. Core Bond ETF (FLCB), which has $1.5 billion in assets. Putnam has 11 U.S.-traded ETFs, with a total of $1.5 billion in AUM, the largest of which is the Putnam ESG Core Bond ETF (PCRB), with $451 million in AUM.  

Asset managers have felt broad pressure to lower fees due to competition from cheap index ETFs, meaning they have had to find other ways to increase revenues.  

Franklin, with the overwhelming majority of its assets in mutual funds, has joined other asset managers in using acquisitions to add to its assets. Having more assets would allow it to continue to grow revenue even as its fees come under pressure. 

Contact Gabe Alpert at [email protected]