What You Need to Know
- The firm wants to expand into private equity as its actively managed funds business struggles.
- The transaction is expected close in the second fiscal quarter of 2022, Franklin said.
- With low interest rates hobbling investor returns, the private equity industry is benefiting from robust demand for higher-yielding assets.
Franklin Resources Inc. will buy Lexington Partners for $1.75 billion to expand into private equity as its mutual fund business struggles. The shares surged.
The deal will complement Franklin’s offerings in real estate, private credit and hedge fund strategies, Franklin said in a statement Monday.
After the transaction is closed, Franklin Templeton’s alternative assets under management will be about $200 billion. The deal is the second in two weeks for the industry.
Mutual fund companies are making acquisitions to broaden their offerings and cushion the blow of losing customers who are favoring index funds.
Franklin focuses on actively-managed funds and has seen outflows as larger competitors including Fidelity Investments and BlackRock Inc. have aggressively pushed into low-cost products including exchange-traded funds.
Franklin shares rose 14% at 9:42 a.m. in New York trading on Monday, the biggest gain since November 2016. The shares advanced 26% this year through Friday.
“This acquisition will position us to capitalize on the highly sought after secondary private equity market,” Jenny Johnson, chief executive officer of Franklin Templeton, said in the statement.
See: Franklin Templeton Acquiring O’Shaughnessy Asset Management