Franklin Resources Inc. announced two deals this week, and observers anticipate that the firm may be making similar announcements in coming months.
Yesterday, the asset manager indicated that it has purchased a 20% equity stake in Pelagos Capital Management LLC, a Boston-based alternative-investment provider with $377 million in assets under management. Today, Franklin's London-based subsidiary, Franklin Templeton Global Investors Ltd., announced that it is buying Rensburg Fund Management Ltd., a UK-based subsidiary of Investec PLC, for $72 million.
The two deals help fill out Franklin's product line and geographic reach. Pelagos' investment strategies include commodities, managed futures and hedge fund replication, which Franklin doesn't have, said William Yun, executive vice president of Franklin Templeton Alternative Strategies.
But with $4 billion in cash on its books as of Sept. 20 — the most the company has ever had — the market would like to see Franklin do more, said Matt Snowling, an analyst with FBR Capital Markets & Co. “The acquisitions are interesting but they don't move the needle on anything that would change Franklin's story,” he said.
Specifically, it might behoove Franklin to purchase a U.S. growth equity product, Mr. Snowling said. “One of the criticisms of Franklin is that they really lack a growth product,” he said. FBR is holding Franklin at a “buy” rating.
Growth equity is an area that would serve Franklin well in the acquisition space, said Don Putnam, managing partner at Grail Partners LLC.
Franklin had $72 billion in global U.S. equity as of Oct. 31. Overall, the firm has $664.3 billion in assets under management.
The $3.5 billion Franklin Growth Fund has outperformed its peers for the past three, five and 10 years, according to Morningstar Inc. But Franklin recognizes that it has a branding issue with its growth strategies because the Franklin name isn't as well known in the U.S., Greg Johnson, president and CEO of Franklin Templeton Investments, said in an analyst call this morning.
The firm has asked whether it should re-brand the growth strategies within Franklin, Mr. Johnson told analysts. “We have decided to not do that, because we don't have the same resistance outside the U.S.,” he said.
More than anything, Franklin would benefit from continuing to consolidate its businesses, Mr. Putnam said.
“At the moment, they are in no way a contender for the top slots,” Mr. Putnam wrote in an e-mail. “They are a collection of specialties, not a single integrated firm.”
Lisa Gallegos, a Franklin Templeton spokeswoman, referred to Mr. Johnson's comments to analysts about how the firm's structure has been beneficial to investors.
“Over the past six quarters, we have experienced the strongest growth in our history, with $90 billion in net new flows, capped off by three consecutive quarters of record net new flows to end fiscal 2010,” Mr. Johnson said.
Jessica Toonkel writes for InvestmentNews, a sister publication of Pensions & Investments.