Franklin Templeton to purchase Legg Mason

In the latest asset management merger, Franklin Templeton has agreed to purchase Legg Mason for $4.5 billion; the merged business will have more than $1.5 trillion in assets under management.

Both are US based asset managers, but run several funds and investment trusts popular with UK investors, including Franklin Templeton’s Emerging investment trust, and Legg Mason’s Japan Equity Fund.

The deal comes after a string of asset manager takeovers including yesterday’s announcement that Jupiter Asset Management will take over Merian Global, in a move that would make it the second-biggest fund house in the UK.

In October 2019 Liontrust purchased the smaller fund house Neptune and in November Premier and Miton merged; there have been other notable fund management mergers over the past couple of years, including Standard Life Aberdeen.

This trend reflects the increased pressure that active management fund houses have faced as passive investments became increasingly popular after the 2008 financial crisis; the managers have also had to wrestle with the pincer movement of downward pressure on fees post-RDR and the increasing cost of complying with the FCA’s demand for greater transparency.

‘increased pressure that active management fund houses have faced as passive investments became increasingly popular’

In a bid to benefit from economies of scale, the number of mergers per year of publicly traded asset managers doubled globally between 2009 and 2018, according to a study from Deloitte Casey Quirk.

Franklin Templeton’s current chief executive Jenny Johnson will head the new business and, at least pro tem, there appears to be little risk of either of the houses’ funds being closed due to crossover.

Despite the fact that the tie-up is of two midsize companies struggling to maintain their business model, both of which suffered investor outflows from their funds last year Ms Johnson said this is ‘offence not defence’.

‘This is not about just bringing together two overlapping platforms and trying to pull out costs,’ she said, noting that the groups were only aiming to generate $200m in annual cost savings from the integration, ‘It is about having an all-weather product line-up and world-class distribution platform.’

In a statement on the decision, Franklin Templeton said Legg Mason and its affiliates will remain autonomous, ‘ensuring that their investment philosophies, processes and brands remain unchanged’.

Joseph A. Sullivan, chairman and chief executive of Legg Mason, noted: ‘By preserving the autonomy of each investment organisation, the combination of Legg Mason and Franklin Templeton will quickly leverage our collective strengths, while minimising the risk of disruption. Our clients will benefit from a shared vision, strong client-focused cultures, distinct investment capabilities and a broad distribution footprint in this powerful combination.’

Legg Mason shares rose 24% to $50.45, just above Franklin’s $50-per-share offer price in a sign of investor confidence that the deal would go through; shares in Franklin jumped 7%.