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Friday, May 26, 2023

Will the Mountain Come to Bob?

Reported by Neil Anderson, Managing Editor

One savvy fund industry analyst thinks that Putnam Investments [profile] should be in play, if it is not already. And it may be, based on some talk in the industry.

The 86-year-old, Boston-based mutual fund firm is a subsidiary of Great-West Lifeco, which in turn is a unit of the Desmarais family's Power Financial. Putnam, led by president and CEO Bob Reynolds, has $169 billion in AUM as of April 30. Based on the going asset manager rate of between one percent and three percent of AUM, the price tag would likely work out to a range from $1.5 billion to $5 billion or so.

"As a general policy, we do not comment on market rumor or speculation," Jon Goldstein, a Putnam spokesperson, tells MFWire.

For an acquirer, Putnam offers a strong brand built over more than 80 years in the marketplace, a suite of actively managed strategies and capabilities — including in the ESG and ETF spaces — and strong distribution with both advisors and in the DC I-O channel. Its AUM is split roughly evenly between institutional and '40 Act business.

Yet Putnam has struggled for growth lately. Its AUM is down eight percent from $192 billion at the end of 2006, which was shortly before Great-West unveiled its acquisition of Putnam. That purchase closed in August 2007.

The folks at Putnam's Canadian parent company, including Paul Desmarais Jr., have long made no secret of their interest in potential strategic opportunities to boost their U.S. asset management presence. A sale could do just that; if the acquirer paid in stock, it would be a sizeable minority stake, giving Great-West and Power a piece in a bigger U.S. asset manager ally without the acquirer totally giving over control.

For such a deal to work, an acquirer would need to be larger than Putnam, but not so much larger that Great-West's stake would end up being too small. This rules out fund giants like BlackRock. A publicly traded buyer would have an advantage also, as Great-West and Power already are, which rules out private firms like Vanguard, Fidelity, Capital Group, DFA, and Dodge & Cox. And asset management would need to be the core business of the acquirer, ruling out asset management subsidiaries of bigger financial services firms, like JPMAM, Schwab, TIAA's Nuveen, Pru's PGIM, Allianz's Pimco, Ameriprise's Columbia Threadneedle, or Morgan Stanley's Eaton Vance. And forget doing a deal with someone like John Hancock or MFS, which are owned by rival Canadian insurance giants Manulife and SunLife, respectively.

That leaves a handful of large, publicly traded fund firms to consider as potential acquirers: the list includes T. Rowe Price, Invesco, Franklin Resources, and Janus Henderson. T. Rowe is big enough, but it rarely makes acquisitions. And Invesco is going through its first CEO change in 18 years, a transition that might slow any Invesco dealmaking in the short-term; Andrew Schlossberg is expected to take over as CEO in a month. Invesco also already did a stock deal for a rival several years one, one that put a sizeable minority stake in the hands of a new ally: MassMutual.

That leaves Janus Henderson and Franklin, both of which have done transformatively large acquisitions before. Spokespeople for Janus did not immediately respond to a request for comment.

"We do not comment on market rumors or engage in speculation about potential M&A activity," Becky Radosevich, a Franklin spokesperson, tells MFWire.

Janus Henderson has $310.5 billion in AUM as of March 31, making it 83-percent bigger by assets than Putnam. A Putnam-Janus deal might put about a third of Janus Henderson's stock in the hands of Great-West, based on the two firms' current relative AUMs.

Franklin Templeton aka Franklin Resources, on the other hand, had $1.4 trillion in AUM as of April 30, making it more than eight times bigger by assets than Putnam. A Putnam-Franklin deal might put about 10 percent or more of Franklin's stock in the hands of Great-West, based on the two firms' current relative AUMs.

Franklin's leadership has also been talking about making deals. Jenny Johnson, president and CEO of Franklin, addressed M&A in Franklin's fiscal Q2 2023 earnings call on May 1. (See the transcript here, per Seeking Alpha.) On the call, Credit Suisse analyst Bill Katz asked Johnson about inorganic growth opportunities. Johnson responded by saying:
What we've always said on the M&A side is, look, we're going to focus on areas where we have product gaps from the alt space. The only place that we think we'd have a real big product gap is infrastructure, but they're hard to buy and very expensive and that anything else on the traditional side would have to include strong distribution capabilities. We're looking to continue to expand distribution.

Obviously, the place everybody loves is retirement because retirement is consistent flows. And honestly, it's the best place for mutual funds today. So anything we do there would have to have some sort of distribution capability.

Putnam could be what Johnson describes looking for. The fund firm has a strong DC I-O presence. The deal could include a Franklin distribution partnership with Empower, a giant recordkeeper also owned by Great-West. And Reynolds himself offers strong retirement, distribution, and operations leadership expertise. He was a key driver of Fidelity's 401(k) strategy and headed their operations. And the coup of a Franklin-Putnam deal could put Reynolds back into a more influential seat in the fund industry. 

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