Analysts said the deal reflects the growing competition money managers focused on actively managed stocks and bonds are facing now from low-cost passive strategies and higher margin private markets strategies.
Active management, a focus for both Franklin and Putnam, "is not dead, but its share of the accessible pool of assets (is) bound to decrease ... squeezed between alternatives on the one hand and passive on the other," said Richard Bruyere, managing partner of Indefi, a strategic adviser to the global asset management industry.
Consolidation, with the object of boosting scale to achieve efficiencies, looks set to continue, noted R. Bruce Cameron, a partner and co-founder of Berkshire Global Advisors, an investment bank focused on the global asset management industry. Even for "great old names" such as Putnam and Franklin, that's the direction things are moving in as large players, with few exceptions, struggle now to garner new assets, Mr. Cameron said.
Great-West's disposal of Putnam is likely a bittersweet move for the Montreal-based firm, which bought the pillar of Boston's money management industry for roughly $3.9 billion in early 2007. At the time, Putnam had roughly $192 billion in assets under management, including more than $22 billion for PanAgora Asset Management, its quantitative money management affiliate.
This year, Franklin Templeton will be acquiring a Putnam with $136 billion in AUM. PanAgora, with $33 billion in assets, will remain with Great-West Lifeco.
Great-West Lifeco’s latest financial statements show the firm’s U.S. asset management business posting losses for the past five quarters through March 31.
Great-West Lifeco executives, in a news release, suggested a leading asset management firm such as Franklin Templeton will be better placed to grow Putnam's business. "Franklin Templeton is a diversified global asset management firm, well-positioned to take Putnam's strengths to the next level," said Paul A. Mahon, president and CEO of Great-West Lifeco.
PanAgora, by contrast, is a keeper, Great-West's executives said on an call with analysts Wednesday to explain the deal. "We like PanAgora as a hold because it's a good business and we think (it) has real upside to it," one executive explained.
Putnam has offices in Boston, London, Munich, Singapore, Sydney and Tokyo.
"This is a compelling transaction for Franklin Templeton, and we are excited about the numerous opportunities that will be unlocked by this long-term strategic partnership with the Power Group of Companies including Great-West," said Jenny Johnson, president and CEO of Franklin Templeton, in a news release. "Power and Great-West are global leaders across financial services, particularly in the wealth, insurance and retirement channels. With outstanding investment performance, Putnam will add complementary capabilities to our existing specialist investment managers to meet the varied needs of our clients and will increase Franklin Templeton's defined contribution AUM. We are pleased to welcome Great-West as a strategic investor, along with the impressive team at Putnam."
A spokeswoman for Franklin, meanwhile, said her firm expects to continue to use the strong Putnam brand name after closing the deal, and execute the acquisition in a way that minimizes disruptions to Putnam’s investment teams and client relationships.
Morgan Stanley & Co. and Rockefeller Capital Management served as financial advisers to Great-West Lifeco and Putnam, while Sullivan & Cromwell served as legal counsel to Lifeco and Putnam.
Ardea Partners served as lead financial adviser and Broadhaven Capital Partners provided financial advice to Franklin Templeton. Willkie Farr & Gallagher served as legal counsel.
Power Corp. of Canada is the parent company of Great-West and Power Group of Companies.
