On Monday, Franklin Resources, Inc. (BEN), operating as Franklin Templeton Investments, announced the completion of the purchase of the remaining 80% stake in Pelagos Capital Management, LLC, an independent investment advisor. Franklin had previously purchased 20% stake in Pelagos in 2010. Financial terms of the deal were undisclosed.
The purchase of Pelagos will assist Franklin Templeton in improving and expanding its alternative investments and multi-asset solutions platforms. Such strategic initiatives would help the company provide world-class investment solutions to its clients and aid its global expansion.
Benefits of the Acquisition
Franklin is presently focused on innovative investment strategies and awaits access to various channels in order to improve its capabilities. Therefore, the Pelagos acqusition will significantly aid in enhancing its services for investors who are keen regarding new investment strategies.
Moreover, Pelagos’s endeavor toward creating alternative investment solutions would enhance overall returns and lower portfolio volatility for investors. Further, Pelagos’ association with advanced risk management systems will aid Franklin in maintaining its commitment to risk management.
On the other hand, managers of Pelagos have expressed their pleasure in being a part of Franklin, based on the company’s well established global market share and widespread resources in distribution, operations and technology.
Additionally, management is impressed by Franklin’s constructive relationship with acquired asset management firms and its reputation of helping them operate as standalone businesses using the resources of the company's diverse platforms.
Franklin has a history of making smaller strategic acquisitions and purchasing highly experienced asset management companies. In 2012, Franklin acquired the controlling stake in K2 Advisors Holdings LLC (K2), an independent fund of hedge funds solutions provider. The purchase consideration included a $182.9 million cash investment in K2, which was primarily used to retire $176.5 million of debt immediately following the acquisition.
Our Viewpoint
Franklin's global footprint is an exceptionally favorable strategic point as its assets under management is well diversified. The company is also poised to benefit from its strong balance sheet and the actions taken for its worldwide expansion. However, the regulatory issues and sluggish economic recovery could mar AUM growth and alleviate costs.
Shares of Franklin currently carry a Zacks Rank #3 (Hold). Some better performing investment managers include Virtus Investment Partners, Inc. (VRTS) and Artisan Partners Asset Management Inc. (APAM) with a Zacks Rank #1 (Strong Buy), while Noah Holdings Limited (NOAH) carries a Zacks Rank #2 (Buy).
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